Plunging Peugeot Shows Who the Buyer Is in Merger of Equals

(Bloomberg) --

Fiat Chrysler Automobiles NV and PSA Group went out of their way to make their combination as equal as possible, shedding assets, paying special dividends and distributing board seats. It didn’t take long for investors to figure out who the buyer is.

Shares of Fiat Chrysler jumped 10% Thursday after the two sides announced the deal, billed as a 50-50 merger. Peugeot owner PSA fell by about the same amount, taking the typical acquirer’s hit.

The math bears it out. Fiat shareholders will get a premium of almost 5 billion euros ($5.6 billion), based on closing prices Tuesday, before reports of the talks, as both sides shed assets before throwing their remaining equity into the pot.

Adjusting for the differences in market values and a 5.5 billion-euro dividend being paid out to Fiat Chrysler shareholders, “achieving a 50/50 shareholding suggests PSA is paying a 32% premium to assume control of FCA,” Jefferies analyst Philippe Houchois said in a note. “PSA shareholders are assuming more market risk.”

Representatives of Fiat and PSA declined to comment.

As of Tuesday, PSA had a market value of 22.6 billion euros. Before it merges with Fiat, it’ll hand shareholders its almost 3 billion-euro stake in French parts maker Faurecia SE, leaving about 19.6 billion euros to be contributed to the new company.

Fiat shareholders will throw in at least 5 billion euros less. The Italian-American company had a market value of 20 billion euros as of Tuesday. But before the deal closes, the carmaker will jettison about 5.75 billion euros: Along with the dividend, it’ll give shareholders its robotics arm Comau, with an estimated value of about 250 million euros.

Of the 5.75 billion euros in payouts before the deal closes, Fiat’s founding Agnelli family will reap almost $1 billion in value. The family’s holding company, Exor NV, is Fiat Chrysler’s largest shareholder and will receive about 1.65 billion euros of the total. The family owns just over half of Exor, so its share of the windfall would be just under 900 million euros, or almost $1 billion.

Fiat Chrysler’s chairman, Agnelli family scion John Elkann, will still have a lot of clout. He’ll be be chairman of the merged company, and Exor will be its largest shareholder with about a 14% stake.

--With assistance from Daniele Lepido.

To contact the reporters on this story: Tommaso Ebhardt in Milan at tebhardt@bloomberg.net;Ania Nussbaum in Paris at anussbaum5@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Tara Patel

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