Fiat-Peugeot Talks Signal Growing Pressure on Car Industry
Fiat and Peugeot maker PSA confirmed they’re holding discussions aimed at creating one of the world’s leading auto groups.
(Bloomberg) -- Fiat Chrysler Automobiles NV’s talks to combine with French carmaker PSA Group point to intensifying pressure on global carmakers to join forces in squeezing costs and tackling the expensive shift to electric cars.
Fiat and Peugeot maker PSA confirmed Wednesday they’re holding discussions aimed at creating one of the world’s leading auto groups. PSA shares rose the most in just over a year, while Fiat jumped as much as 11%.
The carmakers are discussing forming a Dutch holding company, with the board makeup still under consideration, according to people familiar with the matter.
PSA’s board plans an extraordinary meeting on Wednesday to authorize management to negotiate the final terms of a potential deal, said the people, who asked not to be named because the information isn’t public. Fiat directors are ready to discuss any offer from PSA, the people said.
A merger of Fiat Chrysler and PSA, the No. 2 for car sales in Europe, would create a regional powerhouse to rival Volkswagen AG, and have a stock-market value of about $49 billion — comparable to Japan’s Honda Motor Co. The tie-up would also bring together two auto-making dynasties, the billionaire Agnelli clan in Italy and the Peugeot family of France. Under the current proposal, the Agnelli’s holding company, Exor, could become the single biggest investor in the combined entity, one of the people said.
Their talks come several months after Fiat Chrysler and PSA, led by Chief Executive Officer Carlos Tavares, explored a partnership on pooling investment to build cars in Europe, and following the collapse in June of negotiations between the Italian-American carmaker and French competitor Renault SA.
Automakers face tremendous pressure to pool their resources for product development, manufacturing and purchasing as they battle through trade wars, a global slowdown and an expensive shift toward electrification and autonomous driving. Producers face the additional burden in Europe of new rules on emissions.
Against this backdrop, the pace of dealmaking has picked up. Volkswagen in July said it will work with Ford Motor Co. on electric and self-driving car technology, while Toyota Motor Corp. is strengthening ties with partners such as Subaru Corp. and China’s BYD Co. The Indian conglomerate that owns Jaguar Land Rover has said it’s open to finding partners for the British automaker but isn’t planning on selling the embattled unit.
Dismal car sales have also added to the mix. Volkswagen on Wednesday lowered its outlook for vehicle deliveries this year due to a faster-than-expected decline in auto markets.
In any deal with Fiat, the French government would play a key role because France is one of the biggest owners of PSA, whose brands also include Opel, Vauxhall and Citroen. The French finance ministry signaled support for the deal Wednesday, while warning it would scrutinize the jobs impact and governance structure of the new company, as well as its commitment to build a European battery maker.
Tavares is likely to keep the CEO title at the combined company while John Elkann, scion of the Italian-American automaker’s founding Agnelli family, would be chairman, the people said. Cost cuts would focus on administrative roles rather than factory jobs, and no factory closings were planned, though that could change, the people said. PSA’s head of human resources told unions Wednesday no plant shutdowns were planned in France.
Analysts greeted word of a possible deal warmly. “The combination of FCA and PSA has more logic than the previously attempted FCA-RNO deal and has a far greater chance of success,” Max Warburton, a Bernstein analyst, wrote to clients.
Fiat shares rose 9.5% at 1:04 p.m. in Milan, giving a market value of 20.1 billion euros ($22.3 billion) while PSA stock was up 5.6% in Paris for a capitalization of 23.8 billion euros.
“If completed, we believe this should ignite more rational industry behavior around allocation of capital,” said Arndt Ellinghorst, an Evercore analyst. He said it’s an opportunity to achieve “gross synergies” above 7 billion euros by 2023 due to overlapping businesses in Europe, Latin America and China.
The companies’ Chinese businesses have been trailing competition and it’s unlikely that a merger would quickly reignite revenue growth in the world’s biggest car market. China’s Dongfeng Motor Corp., which holds about 12% of PSA, could also have a say on the deal.
PSA has been floated as a logical merger partner with Fiat, because of their complementary product and geographic fit, and the two sides discussed partnership possibilities this year. However, the Italian-American carmaker instead pursued a deal with Renault. Those talks were called off in June due to opposition from the French government stemming from a lack of support from Renault’s Japanese alliance partner Nissan Motor Co.
What Bloomberg Intelligence Says
Fiat Chrysler’s leaned-out figure offers North America volume and profit in the form of the Jeep and Ram brands, while Peugeot would bring Europe profitability to the marriage.
Kevin Tynan, Automobiles analyst
Fiat Chairman Elkann walked away from the potential deal with Renault blaming “political conditions in France.” Fiat Chrysler signaled at the time that the French state would have to give up its sway over Renault for a resumption of talks, people with knowledge of the situation said at the time.
Tavares has sought to re-establish Peugeot’s foothold in the U.S., a market it exited in 1991. He set plans earlier this year for a return, with shipments starting from Europe or China in 2026.
Fiat Chrysler is seen as a laggard in new technologies such as electrification and autonomy, which are expected to cost automakers billions of dollars over the next decade. The company has sought to secure its future with a larger partner for several years, dating back to late CEO Sergio Marchionne’s failed courtship of General Motors Co. After being rebuffed by GM in 2015, rumors of talks with other automakers have swirled with varying intensity.
--With assistance from Gabrielle Coppola, Daniele Lepido, Liana Baker, Siddharth Philip, Tian Ying, Anurag Kotoky and David Welch.
To contact the reporters on this story: Tommaso Ebhardt in Milan at tebhardt@bloomberg.net;Ania Nussbaum in Paris at anussbaum5@bloomberg.net;Aaron Kirchfeld in London at akirchfeld@bloomberg.net
To contact the editors responsible for this story: Kevin Miller at kmiller@bloomberg.net, ;Anthony Palazzo at apalazzo@bloomberg.net, Tara Patel
©2019 Bloomberg L.P.