Coronavirus Won't Stop World's Fourth-Largest Automaker Merger

Industry News / 2 Comments

FCA and PSA Peugot Citroen are pushing ahead, despite COVID-19

Fiat Chrysler Automobiles and France's PSA Peugot Citroen are attempting to go through with their merger as planned regardless of any complications posed by the global outbreak of the novel coronavirus, although the exact details of the merger might need to evolve.

At issue is the respective market capitalizations of FCA and PSA, both of which have taken a substantial hit as the viral outbreak has brought automotive production to a virtual standstill, and hampered sales by choking numerous industries as people are urged to stay home. The two global automakers had originally seen the merger as a joining of equals, but as sliding share prices impact both companies' valuations, the terms of the deal might need to change.

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One detail especially likely to change is the dividend payout FCA shareholders stood to receive after the merger, which was set back in December when FCA and PSA first signed their memorandum of understanding. The Italian-American auto company had agreed to pay out a total of €5.5 billion - roughly $6.1 billion US - to shareholders. PSA, meanwhile, had agreed to distribute its 46-percent stake in French automotive supplier Faurecia to its shareholders.

But the economic slowdown that's come out of the global COVID-19 outbreak hasn't affected all parties evenly, and where FCA had a slightly higher market cap than PSA prior to the global pandemic, it's now less valuable than its French merger partner. Meanwhile, justifying a multi-billion dollar dividend payout to shareholders seems high-risk given the current global economic environment, and Faurecia is less valuable today than it was before the virus struck.

Peugot Peugot Citroen Citroen

In a statement, PSA Peugot Citroen said that it would be "inappropriate to be speculating about modifications of the deal conditions" within the context of the pandemic, adding that the company is "taking the necessary decisions to ensure group sustainability."

"More than ever, this merger makes sense," the company said.

They might be right about that. The merger with FCA, which will create the fourth-largest automaker in the world by total volume, will benefit both entities by allowing for greater sharing of parts, platforms, technologies, and development costs - maybe even to the extent that we could see FCA re-enter the small-car segment, or Citroen could keep the Cactus alive as a Jeep Renegade-based subcompact CUV. All of those things might help soften the blow dealt by the novel coronavirus outbreak.

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Source Credits: Automotive News

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