FCA and PSA’s Merger (Part 1): Formally Agreed on an Equal Merger
Forming a 50/50 partnership in 2021 with EUR 3.7 billion in annual synergies
2020/01/28
- Summary
- FCA and PSA’s merger plans: 4th largest auto manufacturer attains geographic balance
- Basic conditions for merger
- EUR 169 billion in post-merger revenues, EUR 42.2 billion in liquidity
- Merger effectiveness (synergy) expected to be EUR 3.7 billion yearly
- Regional sales figures for FCA and PSA (accomplishments)
- FCA and PSA consolidated business results (accomplishments)
- Sales Forecast by LMC Automotive: FCA's sales to decline to 4.29 million units in 2020
Summary
On December 18, 2019, Fiat Chrysler Automobiles (FCA) and PSA Group (PSA) officially agreed in a binding memorandum, to a merger between the two companies. The resulting company will be the fourth-largest automaker worldwide, with annual worldwide sales of 8.7 million vehicles, just behind Volkswagen Group, the Renault–Nissan–Mitsubishi Alliance, and the Toyota Group. The merger is expected to require 12 to 15 months including approval from both companies’ shareholders, alongside antitrust and other regulatory requirements.
The new corporation will cover all major segments, including luxury cars, mass-produced vehicles, SUVs, pick-up trucks, and light commercial vehicles. Combining FCA’s strengths in North America and Latin America with PSA’s strengths in Europe will result in an improved geographic balance in terms of unit sales and revenue.
One of the key conditions of the merger is the formation of a new corporation with equal stakes. Additionally, the headquarters must be in the Netherlands, with management headquarters located in France, Italy, and the United States, and FCA chairman John Elkann as the chairman of the new company, with Carlos Tavares, current CEO of PSA, as CEO.
Performance post-merger is expected to secure the new company as third largest automaker globally, with sales of EUR 169 billion. Financially, the company will have a total liquidity of EUR 42.2 billion, providing significant leeway for executing strategic plans and investing in new technologies.
One of the synergistic effects of the merger is that the new company will save EUR 3.7 billion annually without having to close factories, owing to the consolidation of platforms and powertrains, as well as reduction in purchasing costs as a result of expanded scale. 80% of synergies will be achieved by the fourth year following the merger. However, the one-time cost of implementing the merger is expected to be EUR 2.8 billion.
While some praise the merger between FCA and PSA as a reasonable combination, others believe that the new company will still lack certain elements that the merger between the two automakers cannot compensate for, claiming both automakers lack a presence in China and are falling behind in the race for electrification. Moreover, some believe the equal merger will hinder decision-making when consolidating brands or closing factories.
The new company’s CASE (Connected, Autonomous, Shared, Electric)-related plans will be reported in “FCA and PSA’s Merger (Part Two)”.
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| FCA & PSA: 4th largest automotive sales worldwide | Merger will provide a better geographic sales balance |
Source: PSA and FCA Proposed Merger (Presentation) December 18, 2019
Related reports:
FCA 2018-2022 Business Plan to renew portfolios of Jeep, Alfa Romeo, Maserati and Ram（Aug. 2018）
FCA to globalize Jeep and Alfa Romeo brands（Dec. 2017）
PSA: Acquisition of Opel from GM boosts PSA to second place in the European market（Jun. 2017）
PSA: Achieved 2021 operating margin target ahead of schedule, shifting to an aggressive stance（Jun. 2017）
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