Daily Management Review

Binding Agreement Reached For Fiat Chrysler And PSA $50B Merger


The announcement of reaching a binding agreement for the approximately $50 billion merger of Fiat Chrysler Automobiles and PSA, owner of Peugeot, was made by the two companies. Analysts believe that the merger will create the fourth largest auto company of the world and is sure to reshape the global car industry.
The name of the new entity emerging out of the merger is yet to be decided upon by France’s PSA and Italian-American Fiat Chrysler. For now, the two companies would get down to work out the details of the promises made by them from the merger – cost cutting of 3.7 billion euros ($4.1 billion) annually without the closure of any of the production facilities of both the companies.
However, the presence of politicians and strong labor unions in both France and Italy, who are worried that the merger could result in job losses as a cost cutting tool as the new merged entity will have a total workforce of 400,000 people, will make the cost cutting planning and implementation hard.
“The merged group will have to make massive savings and probably also close plants, even if the CEOs’ choice of words is different,” said NordLB autos analyst Frank Schwope after the binding agreement was announced on Wednesday.
The decision of the merging of Europe’s second and third biggest carmakers was however welcomed by the French finance minister Bruno Le Maire but added that French government – which is a critical shareholder of PSA – would be closely watching the developments especially on where the “decision centers” of the new entity would get located. 
The initial announcement of the merger was made by PSA and FCA about one and half months ago in which the companies announced a 50-50 all-share merger that would create the fourth largest auto company of the world - being eclipsed only by Volkswagen, Toyota and the Renault-Nissan alliance.
The major aim of the merger is to enable both the companies to combat slowdown in global demand and sale of cars and the extensive capital investments required for development of electric cars to adhere to every stricter environment regulations in the US and Europe.
Last year, the combined sale of the two companies was at 8.7 million vehicles with brands such as Jeep, Dodge, Ram, Chrysler, Alfa Romeo, Maserati and Opel. But according to forecasters LMC Automotive, the two companies will have a possible total manufacturing capacity of 14 million.
None of the companies have yet said anything about their plans to address the possible excesses in staff and resources as well as on the car platform and the underlying vehicle structures that the new entity will focus on. The companies have only said that the new merged company will have its focus on two platforms.
“At this stage, nothing is decided. We have been evaluating what the opportunities are,” PSA Chief Executive Carlos Tavares, who will head up the merged entity as CEO, told reporters.
NordLB’s Schwope said:  because both PSA and FCA are “currently lagging far behind the competition in terms of technology and product range,” therefore there is no time to lose for the companies.