No plant closures, fewer government ties and independence from other tangled partnerships mean that Fiat Chrysler Automobiles NV's proposed merger with French carmaker Groupe PSA has a better chance of success than it had with Renault SA, according to experts.
Many of the complexities surrounding Fiat Chrysler's proposal with Renault from France, including a long-standing relationship with the French government and alliance with Nissan Motor Corp. in Japan, does not exist with PSA, home to Peugeot and Citroën. It makes the proposal detailed Thursday between the FCA and PSA to create the fourth-largest car manufacturer the size to invest in future technologies that are likely to be implemented, experts say.
"From a financial point of view, Renault is the best deal that can be made. However, it will take too much time," said Ferdinand Dudenhöffer, professor of automotive economics at the Center for Automotive Research at the University of Duisburg-Essen in Germany. "If you have discussions and discussions go nowhere, it is too high a risk to complete the deal. Then it is better to take the second best deal."
The FCA and the PSA did not provide a timeline for their quickly successful agreement, but the next step would be for their boards to sign a memorandum of understanding. In an email to staff gathered by The Detroit News, Manley wrote Thursday that he hopes to be reached "in the coming weeks" – emphasizing that expected "synergies are NOT based on plant closures."
Structurally, a proposal earlier this year with Renault was similar.
A combination with PSA would create one of the world's largest car manufacturers. Working together would generate billions of dollars in "synergies" from combining investment in vehicle platforms, drivelines and technology. In PSA's case, annual cost savings were estimated at $ 4.1 billion.
The merger would not result in a reduction in production, and shareholders in both companies would receive 50% of the stock in the new unit, which would be listed on stock exchanges in Milan, New York and Paris. . Based in the Netherlands, the combined company would retain large operations in Auburn Hills, Paris and Turin, Italy, home to FCA's forerunner, Fiat SpA, and the founding Agnelli family now represented by Fiat Chrysler Chairman John Elkann.
A final similarity: The French government has a two-digit ownership stake in both PSA and Renault. The State Investment Agency owns 15% of the shares in Renault, while BPIfrance's sovereign wealth fund is slightly smaller with 12% shares in PSA. In June, Elkann cited France's "political situation" as the rationale behind the Italian-American carmaker who withdrew the offer to Renault.
French Finance Minister Bruno Le Maire had said his office wanted to take the time to ensure the deal was "done the right way." The government sought to guard against politically powerful closures of facilities and positions often associated with industrial mergers. Although Le Maire has indicated the need to retain French jobs, this time he is bullish on a deal.
"This merger between Peugeot and Fiat could create the world's fourth-largest car champion," he said on Thursday at the French Ministry of Finance, according to Reuters. "It gives us critical size to meet the dual challenges of autonomous vehicles and electric cars."
Both companies needed partners to compete in the global industry going forward, said Erik Gordon, a professor at the University of Michigan's Ross Business School.
With Renault, "the French government reaction was so heavy, it put an end to any chance of a merger," Gordon said. "This time they may have brass knuckles, but the fist is behind their backs. They need French carmakers as global competitors, or that will be the end of jobs too. And when they used the brass knuckles, it didn't happen."
The French government has influence over two of Renault's board members, and the relationship stems from decades. The government's holding in PSA began in 2014 when it agreed to participate in a rescue plan.
But Renault's relationship with Nissan also probably discouraged the government, said Carla Bailo, executive director of the Center for Automotive Research in Ann Arbor. The deal had come in the midst of deepening the strain in Renault's 20-year alliance with Nissan and Mitsubishi Motor Corp. after charges of financial wrongdoing against long-time CEO Carlos Ghosn, who denies the allegations.
"That alone created problems," Bailo said. "As a result, the French government was not so deeply supported. All parties did not agree well."
And the agreement with Renault lacked a strong leader to get the merger done, experts said. But PSA brings with it CEO Carlos Tavares, 61, who would lead the combined company and have one of 11 board seats. Tavares, who learned to restructure a business under Ghosn, acquired General Motors Co.'s losing Opel and Vauxhall brands in 2017, turning them into an $ 18 billion business.
FCA's Elkann would chair The New Company's board and sit with four other FCA appointees. In addition to Tavares, the PSA would nominate five other members, including the board's deputy chairman and senior independent director.
FCA CEO Mike Manley, six years younger than Tavares, would likely become chief of operations and run his North American business from Auburn Hills, according to two sources familiar with the situation.
"I am thrilled to have the opportunity to collaborate with Carlos and his team on this potentially industry-leading reboot," Manley said in a statement. "We have a long history of successful collaboration with Groupe PSA, and I am convinced that together with our great people, we can create a world-class global mobility company."
The companies expect their convergence to achieve some of the highest margins based on FCA's forces in North America and Latin America, and PSAs in Europe. The FCA would distribute a special dividend of $ 6.1 billion (€ 5.5 billion) and its stake in its Comau robotics business. PSA wanted to distribute its 46% stake in car supplier Faurecia to its shareholders.
With the PSA already producing electric vehicles, the FCA would also be able to take advantage of these models in the hope of avoiding hefty fines from carbon emissions restrictions in Europe, experts said.
However, investors may need a little more convincing about the deal: Although Fiat Chrysler's shares closed up 2.3% on Thursday, Peugeot SA's shares were nearly 13% in Paris.
"I think the market-recognized trade is much better for Fiat," said Eric Schiffer, CEO of Los Angeles & # 39; Patriarch Organization, a technical private equity firm. "It allows Fiat to stay competitive in this new age of electric and these public policies that come with it."
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