Fiat Chrysler Automobiles N.V. (FCA) and Peugeot S.A. (Groupe PSA) last week signed a binding agreement for a 50-50 merger of their businesses, creating the fourth largest global automotive OEM by volume and third largest by revenue.
“Our merger is a huge opportunity to take a stronger position in the auto industry as we seek to master the transition to a world of clean, safe and sustainable mobility and to provide our customers with world-class products, technology and services. I have every confidence that with their immense talent and their collaborative mindset, our teams will succeed in delivering maximized performance with vigor and enthusiasm,” Carlos Tavares, chairman of the Managing Board of Groupe PSA.
“This is a union of two companies with incredible brands and a skilled and dedicated workforce. Both have faced the toughest of times and have emerged as agile, smart, formidable competitors. Our people share a common trait – they see challenges as opportunities to be embraced and the path to making us better at what we do,” Mike Manley, chief executive officer of FCA, added.
Completion of the proposed combination is expected to take place in 12-15 months, subject to customary closing conditions, including approval by both companies’ shareholders at their respective Extraordinary General Meetings and the satisfaction of antitrust and other regulatory requirements.
The proposed combination will be an industry leader with the management, capabilities, resources and scale to successfully capitalize on the opportunities presented by the new era in sustainable mobility.
With its combined financial strength and skills, the merged entity will be particularly well placed to provide innovative, clean and sustainable mobility solutions, both in a rapidly urbanizing environment and in rural areas around the world. The gains in efficiency derived from larger volumes, as well as the benefits of uniting the two companies’ strengths and core competencies, will ensure the combined business can offer all its customers best-in-class products, technologies and services and respond with increased agility to the shift taking place in this highly demanding sector.
The combined company will have annual unit sales of 8.7 million vehicles, with revenues of nearly EUR170 billion (USD188 billion), recurring operating profit of more than EUR11 billion (USD12 billion) and an operating profit margin of 6.6%, based on 2018 results. The strong combined balance sheet provides significant financial flexibility and ample headroom both to execute strategic plans and invest in new technologies throughout the cycle.
The combined entity will have a balanced and profitable global presence with a highly complementary and iconic brand portfolio covering all key vehicle segments from luxury, premium, and mainstream passenger cars through to SUVs and trucks and light commercial vehicles.
This will be underpinned by FCA’s strength in North America and Latin America and Groupe PSA’s solid position in Europe. The new group will have much greater geographic balance with 46% of revenues derived from Europe and 43% from North America. The combination will bring the opportunity for the new company to reshape the strategy in other regions.
The efficiencies that will be gained from optimizing investments in vehicle platforms, engine families and new technologies while leveraging increased scale will enable the business to
enhance its purchasing performance and create additional value for stakeholders. More than two-thirds of run rate volumes will be concentrated on two platforms, with approximately three million cars per year on each of the small platforms and the compact/mid-size platform.
These technology, product and platform-related savings are expected to account for approximately 40% of the total EUR3.7 billion (USD4 billion) in annual run-rate synergies, while purchasing – benefiting principally from scale and best price alignment – will represent a further estimated 40% of the synergies. Other areas, including marketing, IT, G&A and logistics, will account for the remaining 20%. These synergy estimates are not based on any plant closures resulting from the transaction. It is projected that the estimated synergies will be net cash flow positive from year one and that approximately 80% of the synergies will be achieved by year four. The total one-time cost of achieving the synergies is estimated at EUR2.8 billion (USD3 billion).
Those synergies will enable the combined business to invest significantly in the technologies and services that will shape mobility in the future while meeting the challenging global CO2 regulatory requirements. With an already strong global R&D footprint, the combined entity will have a robust platform to foster innovation and further drive development of transformational capabilities in new energy vehicles, sustainable mobility, autonomous driving and connectivity.
The merged entity will benefit from an efficient governance structure designed to promote effective performance, with a Board comprised of 11 members, the majority of whom will be independent. Five Board members will be nominated by FCA and its reference shareholder (including John Elkann as chairman) and five will be nominated by Groupe PSA and its reference shareholders (including the senior non-executive director and the vice chairman). At closing, the Board will include two members representing FCA and Groupe PSA employees. Carlos Tavares will be chief executive officer for an initial term of five years and will also be a member of the Board.
The new group’s Dutch-domiciled parent company will be listed on Euronext (Paris), the Borsa Italiana (Milan) and the New York Stock Exchange and will benefit from its strong presence in France, Italy and the U.S.