Peugeot (PUGOY) and Fiat Chrysler (FCAU) - Get Report on Wednesday announced they will merge in a $50 billion deal that will create the world’s fourth-largest carmaker, positioning both companies to take on the inevitable shift to electric vehicles and other new people-and goods-moving technologies.
Both companies announced in a joint statement that their respective boards approved the deal, which will see the French and Italian-American carmakers each owning half of the combined new company, which will be run by PSA CEO Carlos Tavares. Fiat Chairman John Elkann will retain the same role at the to-be-renamed company.
The agreement, when completed in approximately 12 to 15 months, will create an automaking giant selling 8.7 million vehicles a year with revenue of nearly €170 billion ($189 billion), the companies said. The merger won’t result in any plant closures and will lead to annual cost savings of some €3.7 billion a year.
The French government owns 12% of PSA Group.
The deal marks an around-the-world trip for what was once one America's dead-last automaker, saved only by the ingenuity and foresight of Detroit legend of Lee Iacocca, who had the foresight to introduce smaller, lighter engines and vehicles that guzzled less gas - and an iconic convertible that both rebranded and reinvigorated the ailing company.
Both sides made concessions to make the trans-Atlantic deal initially announced in October more attractive to U.S. regulators as well as to PSA shareholders, with the two companies signing a combination agreement fixing the financial terms of the deal as well as the new company’s corporate governance structure.
The deal comes at a time of mounting cost pressures in the global car business, with auto companies investing billions in new technologies, such as electric cars, as demand for cars and trucks in the top auto markets weakens.
“The challenges of our industry are really, really significant,” Tavares told reporters on a post-announcement call. “We are doing this because we believe that we will be stronger to face the future challenges of our industry than alone.”
Fiat Chrysler shares rose as much as 1.8% in Milan following the announcement before paring gains, while PSA shares were up 1.7% in Paris. Fiat stock has risen 16% since the companies revealed their merger talks in late October, while PSA shares have fallen 10%