Merging of FIAT Chrysler french auto giant PSA Group and US car manufacturer -Italia have agreed to join. The directors of the two companies have decided that a merger of funds will create a company worth the US $ 46 billion.
Both have signed a binding agreement to merge 50% -50% of their business. The combined company will be led by PSA Chief Executive Officer Carlos Tavares, with Fiat Chairman John Elkann holding the same role in the new company.
Form a center of strength to compete
The merger will form a regional powerhouse to rival Germany’s Volkswagen AG and surpass Ford Motor Co. This union also unites two dynasties of carmakers, namely the billionaire Agnelli clan from Italy, which is now led by Elkann and Peugeot from France.
Industry challenges are significant. “Green deals, automatic steering vehicles, connectivity, and all of these topics require significant resources, strength, skills, and expertise,” Tevares was quoted as saying by Bloomberg, Wednesday (12/18).
Generate synergy without closing any factory
PSA Group and Fiat Chrysler plan to generate 3.7 billion euros in annual synergy after the merger without closing any factories. That does not change from the target that was delivered when announcing the merger plan beforehand.
Their challenge to achieve that target is undoubtedly massive, ranging from increasing European operations that fought Fiat to meeting stringent new regulations on emissions that begin next year in Europe.
Tavares, who is known for not compromising on regular pruning, must also navigate the flow of political crossroads in France, Italy, and the United States, where carmakers have deep national roots.
But he had handled heavy work before. Tavares led the French carmaker back from the brink after taking over in 2014 and revived the loss-making Opel brand after acquiring it from GM two years ago.
China Dongfeng Motor Corp, which has a 12% stake in PSA, will see its shares in the combined company drop to 4.5% as a result of the merger and sale of part of its ownership to the French carmaker.
Dongfeng’s ownership in PSA is in the spotlight because it might interfere with US regulatory approval of the agreement.
While Tavares said, the company did not expect significant problems from regulators. Fiat CEO Mike Manley has brushed aside concerns about legal and tax issues that have emerged in recent weeks.
General Motors Co. in November accused Fiat Chrysler of bribing unions in the US for more favorable terms. Manley called the accusations baseless.