Peugeot Maker PSA Has French Backing for Fiat Deal

(Bloomberg) --

PSA Group has secured the backing of one of its major shareholders, the French government, for its plan to merge with Fiat Chrysler Automobiles NV, according to people familiar with the matter.

The French state, which owns roughly 12% of PSA and has board representation, is supporting a binding memorandum of understanding that reflects minor changes to an accord unveiled on Oct. 31, said the people, who asked not to be named because the deliberations are private. Directors of both companies plan to meet on Tuesday to consider the deal, with an announcement possible that evening though more likely to come on Wednesday, they said.

The combination “makes sense in order to build a new champion with global scale to take on the challenges of sustainable mobility,” a French finance ministry official said in a statement Monday. Representatives at PSA and Fiat declined to comment.

The carmakers sketched their plan six weeks ago to create a regional powerhouse challenging Volkswagen AG in Europe, while maintaining Chrysler’s Detroit 3 presence in the U.S. with Jeep and Ram. The new company would be based in the Netherlands and headed by PSA Chief Executive Officer Carlos Tavares. Fiat Chrysler Chairman John Elkann would keep his role as chairman.

The deal will turn two mid-sized carmakers into a global giant, with sales of more than 8 million vehicles a year and a stable of brands including PSA’s Peugeot and Citroen and Fiat Chrysler’s Jeep, Alfa Romeo and Ram.

The automakers are responding to growing pressure on the industry to pool resources for product development, manufacturing and purchasing in the face of trade tensions, a global sales slowdown and an expensive shift toward electric and self-driving technology.

PSA shares rose 0.1 percent in Paris, giving the company a market value of 20 billion euros ($22 billion). Fiat increased 0.6% to 13.4 euros in Milan for a market capitalization of 21 billion euros.

To contact the reporters on this story: Ania Nussbaum in Paris at anussbaum5@bloomberg.net;Daniele Lepido in Milan at dlepido1@bloomberg.net;Tommaso Ebhardt in Milan at tebhardt@bloomberg.net

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

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