PSA Group (Peugeot S.A.) and FCA (Fiat Chrysler Automobiles) have today signed a binding Combination Agreement providing for a 50/50 merger of their businesses to create the 4th largest global automotive OEM (original equipment manufacturer) by volume and 3rd largest by revenue.
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.
Synergies derived from this merger 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 newenergy vehicles, sustainable mobility, autonomous driving and connectivity.
Carlos Tavares (Chairman of the Managing Board of Groupe PSA) will be Chief Executive Officer (CEO) of the merged company for an initial term of five years and will also be a member of the Board.
Tavares said on the agreement: “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.”
Mike Manley, Chief Executive Officer of FCA, added: “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.”
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.
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 US.
Anual unit sales at 8.7 mill units and revenues at €170Bn
The combined company will have annual unit sales of 8.7 million vehicles, with revenues of nearly €170 Bn, recurring operating profit of over €11 Bn and an operating profit margin of 6.6%, all on a simple aggregated basis obased 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.
46% revenues coming from Europe and a wide brand portfolio accross all segments
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 & 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, based on aggregated 2018 figures of each company.
The combination will bring the opportunity for the new company to reshape the strategy in other regions.
3.7Bn in annual synergies and savings
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 twothirds of run rate volumes will be concentrated on 2 platforms, with approximately 3 million cars per year on each of the small platform and the compact/mid-size platform.
These technology, product and platform-related savings are expected to account for approximately 40% of the total €3.7 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 1 and that approximately 80% of the synergies will be achieved by year 4. The total one-time cost of achieving the synergies is estimated at €2.8Bn.
50%-50% nominated Board
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, Mike Manley and their executive teams have a strong track record in successfully turning around companies and combining OEMs with diverse cultures. This experience will support the speed of execution of the merger, underpinned by the companies’ strong recent performances and already robust balance sheets.
The merged entity aims to maneuver with speed and efficiency in an automotive industry undergoing rapid and fundamental changes.
Image over the headline.- Carlos Tavares (Chairman of the Managing Board of Groupe PSA) and Mike Manley (Chief Executive Officer of FCA) shake hands after signing the merger agreement.© FCA
