Fiat Chrysler, PSA Should Revise Merger Terms, Investor Says

(Bloomberg) -- A PSA Group shareholder is calling for the French carmaker to change the terms of its merger with Fiat Chrysler Automobiles NV to reflect the downturn in the global auto industry and the Italian-American manufacturer’s declining prospects.

Six months after striking a deal to combine, the two companies’ fortunes have diverged, Paris-based Phitrust said in a statement ahead of Peugeot-maker PSA’s annual meeting on June 25 and Fiat’s the following day. “Even back in December 2019, the respective situations of each group didn’t justify a 50-50 merger,” it said.

The auto sector has undergone a seismic shift since the two carmaking dynasties unveiled plans to combine into the world’s fourth-biggest producer. The coronavirus pandemic shut factories and dealerships across the globe, leading to a sales collapse.

While Fiat Chrysler is poised to get a state-backed 6.3 billion-euro ($7.1 billion) credit facility in Italy, PSA Chief Financial Officer Philippe de Rovira has said the French company wants to be “as free as possible of public dependence.”

PSA shares rose 1.2% in early trading Tuesday, while Fiat gained 0.9%, taking losses for both stocks to about 35% since the start of the year.

PSA’s strong balance sheet and cost cutting have helped it weather the slump, while Fiat Chrysler’s finances appear increasingly fragile, Phitrust said.

“PSA didn’t burn through cash since the start of the year the way FCA did,” Olivier de Guerre, head of Phitrust, said by phone on Monday. He added the combined company also faces complications from an expected post-merger restructuring in Europe.

A spokeswoman for PSA declined to comment on the critique, but pointed to the groups’ joint statement last week in which they said preparations for the merger are advancing as planned. Fiat Chrysler didn’t respond to a request for comment.

PSA and Fiat Chrysler already have revised one aspect of the merger. They scrapped the 1.1 billion-euro dividends each agreed to pay as part of their agreement, citing the negative impact of the Covid-19 crisis.

Their deal also included a plan for Fiat Chrysler to distribute a 5.5 billion-euro special dividend. The companies haven’t provided details on that payment since the outbreak. PSA plans to distribute to its own investors its 46% stake in car-parts maker Faurecia SE, whose shares have dropped by about a third since the start of the year.

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