FCA and PSA Merger Could Be Reviewed Amid COVID-19By Alejandro Enríquez | Fri, 04/17/2020 - 13:10
Both groups are reviewing the terms of shareholders’ dividends amid the economic downturn COVID-19 has caused.
Working groups at Fiat-Chrysler and Peugeot's owner PSA Group are speeding up on closing the final deal on their merger, Carlos Tavares, CEO of PSA Group, told Reuters. Both groups postponed their annual shareholders meetings due to COVID-19.
The unprecedented situation that has halted automakers' operations across the world has also put on hold cash flows in the world's most important vehicle markets. Looking to increase reserves, FCA and PSA are accelerating their merger by the end of 2020.
When both groups announced the merger in late 2019, an important part of the deal was a 50-50 percent merger, meaning shareholders from both groups will have a 50 percent holding in the new entity. The merger also includes a special €5.5 billion (US$5.98 billion) dividend to its investors.
PSA's and FCA's shares have fallen since the virus started spreading in Europe. Since late February, shares are down 45 percent for FCA and 32 percent for PSA. Alix Partners has estimated a global 22 to 27 percent fall in global sales, while all European automakers could lose around €$7 billion (US$7.61 billion) in liquidity.
As there are no certainties regarding what the outcome will be, PSA’s annual shareholder meeting scheduled for May has been postponed to June 25, while FCA has not given a new date. According to Reuters, sources from both companies have mentioned it would not be financially wise to pay the dividend.
If FCA decides to apply for the financial aid offered by the Italian government – from a €400 billion (US$435 billion) fund – it will be obligated to suspend any payments of dividends at least for a year. PSA could face a similar scenario if deciding to apply for taxpayer’s money. This could contravene the original terms of the deal. PSA Group released in a statement: “It is inappropriate to be speculating about modifications of the deal’s conditions. We are completely focused on protecting our employees and our company.”
According to the merger agreement, there is also a €500 million (US$543.8 million) termination fee in case of "change of board recommendation" and a €250 million (US$271.9 million) fee in case "the board has failed to hold a vote of shareholders before March 31, 2021."
The FCA-PSA merger will create the fourth largest carmaker group in the world, with an annual production of 9 million vehicles, before the COVID-19 situation. The deal is expected to be effective at the end of 2020. The terms of the deal also include the spinoff of Faurecia, the Global Tier 1 company currently owned by PSA. Shareholders of the group will remain a 46 percent share of the company.
John Elkann, Chairman of FCA, has shown its confidence that the merger will help both groups to achieve a target of €3.7 billion (US$4 billion). The new group will be under the leadership of PSA's current CEO, Carlos Tavares, while John Elkann will act as Chairman.
In December 2019, FCA and PSA had a combined market capitalization of around €42 billion (US$45.7 billion). The merger will boost the new group's competitiveness as it targets to save €$.7 billion (US$7.6 billion) a year without closing factories.