Fiat Chrysler Automobiles and Peugeot have agreed to a merger, sacrificing their independence as a means to reduce the costs of shifting to electric and autonomous vehicles.
The proposed combination would create the world’s fourth-largest automaker, with unit sales of 8.7 million vehicles, combined revenues of nearly 170 billion euros ($190 billion) and recurring operating profit of more than 11 billion euros ($12.3 billion).
The companies said there is “compelling logic for a bold and decisive move that would create an industry leader with the scale, capabilities and resources to capture successfully the opportunities and manage effectively the challenges of the new era in mobility.”
FCA and Peugeot estimate they could save 3.7 billion euros a year from “a more efficient allocation of resources for large-scale investments in vehicle platforms, powertrain, and technology and from the enhanced purchasing capability inherent in the combined group’s new scale.”
“These synergy estimates are not based on any plant closures,” they noted.
The merger will be accomplished by exchanging shares, with each company contributing 50% of the new entity. Shareholders of FCA will receive a special dividend of 5.5 billion euros while PSA shareholders will receive a special dividend of about 3 billion euros from the sale of the company’s stake in Faurecia, an auto parts maker.
Carlos Tavares, the chief of Peugeot, will lead the new company, with FCA Chairman John Elkann serving as chairman.
“To make the deal work, Mr. Tavares will have to solve a host of problems at Fiat Chrysler that include an aging model lineup, a lack of investment in new technologies and a dependence on one region, North America,” The Wall Street Journal said.
In Europe, stricter rules to address climate change that go into effect in 2021 have triggered heavy investments in electric and hybrid cars. Combining with Peugeot will reduce the average carbon-dioxide emissions of FCA’s vehicles and help it avoid EU fines that could come to 3.5 billion euros, according to Tom Narayan, an analyst at Royal Bank of Canada.
“Both companies lag behind rivals in terms of electrification,” Felipe Munoz, senior analyst at Jato Dynamics, told The New York Times.