FCA-PSA merger amended to address COVID-19

16 September 2020

16 September 2020

PSA Group and Fiat Chrysler Automobiles (FCA) have restructured the terms of their planned merger. The move comes as a response to the impact of the coronavirus (COVID-19) pandemic, which has taken a heavy toll on the automotive industry.

The two manufacturing groups announced plans in December 2019 to create the world’s fourth-largest automotive company – and Europe’s second-biggest. Working under the new name Stellantis, the 50/50 merger between FCA and PSA will have the potential to achieve annual unit sales of around eight million vehicles worldwide.

Cash conservation

In a move to combat the effects of the pandemic, both parties have agreed to cash-conserving merger amendments. FCA and PSA’s joint release explains this was done ‘in order to address the liquidity impact on the automotive industry of the COVID-19 pandemic while preserving the economic value and fundamental balance of the original combination agreement.’

Specifically, this means FCA will cut the cash portion of a special €5.5 billion shareholder dividend down to €2.9 billion. Meanwhile, PSA’s 46% stake in Faurecia will be distributed to all Stellantis shareholders after the merger closes, following board and shareholder approval.

Therefore, FCA and PSA’s respective shareholders will receive an equal 23% of shareholdings in the automotive supplier. Meanwhile, their 50/50 ownership of Stellantis, which will now have €2.6 billion more on its balance sheet, will remain unchanged.

FCA and PSA’s boards will also consider distributing €500 million to the shareholders of each company before closing. Alternatively, €1 billion could be paid to all Stellantis shareholders after closing. This will be based on the performance and outlook of both companies, as well as market conditions.

Decisive milestone

‘With this new decisive milestone, we are moving all together towards our goal in the best possible condition with even greater prospects for Stellantis,’ said Carlos Tavares, chairman of the managing board of PSA Group.

‘I would like to take this opportunity to warmly thank the teams who have built reciprocal relations of trust, including during the COVID-19 confinement. The human factor is at the heart of the dynamic of such a project, together with the support of our shareholders who have once again demonstrated their commitment to the creation of Stellantis.’

‘I cannot commend highly enough the commitment of the teams working towards the launch of Stellantis and of all our people in overcoming the extraordinary challenges COVID-19 has presented,’ said FCA CEO Mike Manley.

‘Today’s announcement is a further, strong signal of a common determination to ensure that Stellantis has all the resources it needs to apply its unique assets, its creative energies and many opportunities to the creation of superior value for all our stakeholders.’

Ongoing investigation

In the midst of this announcement, the European Commission continues its in-depth investigation into the merger. Announced in June, the probe follows concern that the combination may reduce competition for light commercial vehicles (LCVs) below 3.5 tonnes in the European Economic Area (EEA) and, more specifically, in 14 EU member states and the UK. According to the Commission, in many European countries, either PSA or FCA is the market leader in LCVs. Therefore, the merger would remove one of the main competitors to the dominant company.

Initially expected to conclude in October, Reuters reported in July that the investigation had been put on hold as regulators await data from the manufacturers. PSA and FCA said their response was in progress but there had been complicating factors, including COVID-19.