Fiat Shaves $3.1 Billion Off Dividend Tied to PSA Merger

(Bloomberg) -- Fiat Chrysler Automobiles NV agreed to shrink a dividend tied to its merger with PSA Group by 2.6 billion euros ($3.1 billion) to shore up the combined company’s finances in the wake of the coronavirus pandemic.

The special cash payout to Fiat Chrysler shareholders will be reduced to 2.9 billion euros from 5.5 billion euros, the carmakers said Monday evening. The reduction will be partially offset by the Italian-American company’s investors getting a stake in French supplier Faurecia SE, and the boards of both automakers will consider an additional dividend later.

Fiat Chrysler rose as much as 8.2% in early trading in Milan on Tuesday. PSA gained as much as 1.7% in Paris.

The changes will give Carlos Tavares, PSA’s chief executive officer, more cash to work with when he takes the helm of an empire making Peugeots in France, Alfa Romeos in Italy and Jeeps in the U.S. He has his work cut out for him after Covid-19 forced manufacturers to shut their showrooms and plants for months this year.

While “neutral in theory” as the reduced distributions accrue to the combined company’s balance sheet, the new terms on balance “are skewed to PSA,” Jefferies analysts led by Philippe Houchois wrote in a note. “FCA’s shareholders are now assuming some market risk on Faurecia shares.”

While major deals including LVMH’s takeover of Tiffany & Co. and Boeing Co.’s combination with Embraer SA’s commercial-aircraft business have been doomed by the pandemic, Fiat Chrysler and PSA have managed to keep their merger relatively drama-free.

Tavares, 62, initially batted away criticism from some PSA shareholders of the special dividend for Fiat Chrysler shareholders, then hinted it could be revisited. He told Bloomberg Television in July that the two companies would finalize the terms of their combination based on an assessment of their cash position toward the end of this year.

The new dividend terms are somewhat of a setback for the Agnelli family that controls Fiat Chrysler, which is led by Chairman John Elkann. But as a consolation for the smaller cash payout, PSA and Fiat Chrysler holders will each receive stakes in Faurecia worth about 1.36 billion euros after their merger closes. Under the original terms of the deal, PSA was going to distribute all of its 46% stake in Faurecia to only its investors.

The Fiat Chrysler and PSA boards also will consider a potential distribution of 500 million euros to each company before they close their deal, or 1 billion euros afterward to shareholders of the combined entity, which will be named Stellantis.

The companies also raised the estimated annual synergies from the combination to 5 billion euros from 3.7 billion euros, and the one-time cost of implementing them to as much as 4 billion euros.

“The big question in our minds is where the 5 billion-euro synergy total came from,” RBC Capital Markets analyst Tom Narayan wrote in a note. “PSA has long said that they would not close plants for either party.”

Other unknowns include possible asset sales and how PSA will integrate FCA into its strategy to comply with Europe’s tough emissions rules, he said.

Exor NV, the Agnelli family’s investment company, said it remains committed to the deal, which is expected to be completed by the first quarter of next year.

“Exor strongly supports the steps taken by the companies to maintain the economic value and balance within the original combination agreement while enhancing the strength of the capital structure of Stellantis at launch,” the company said in a statement. Exor’s shares gained as much as 3.8% in Milan.

Italian business daily Il Sole 24 Ore reported earlier that the companies reviewed the dividend terms.

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