PSA and Fiat Chrysler, a merger that raises questions

It is the first economic event of the year. The shareholders of PSA and Fiat Chrysler (FCA) should each vote in favor of the merger between the two groups, which was announced at the end of 2019.

The outcome of these two assemblies is hardly in doubt given the balance of power. The Agnelli family controls Fiat, while in France, the Peugeot family, the State (via BPIFrance) and the Chinese Dongfeng (which will gradually withdraw from the new group) weighs heavily enough to impose their views.

Brussels has already authorized the operation

Just before Christmas, the European Commission has already given the green light to the creation of Stellantis, the world’s fourth largest automotive group by volume and third by turnover, behind Volkswagen and Toyota, with famous brands such as Peugeot, Citroën, Opel, Fiat, Chrysler, Jeep, Maserati, Dodge or even Alfa Romeo.

→ THE FACTS. Brussels authorizes merger between PSA and Fiat Chrysler

The only condition posed by Brussels was that PSA and FSA leave some room for their competitors on the small utility market where they have a third of the market. Both are already making vehicles on behalf of Toyota: they are committed to producing more and at a lower price.

Headquarters in the Netherlands

John Elkann, the current president of FCA and heir to the founding Agnelli family, will chair the board of directors, while Carlos Tavares, the boss of PSA, will be the managing director. Stellantis will be listed in Paris, Milan and New York, but the head office domiciled in the Netherlands, like Airbus, STMicroelectronics or the Renault Nissan Alliance

→ EXPLICATION. What you need to know about the PSA-Fiat Chrysler merger

The kingdom is highly prized by large multinationals which benefit from numerous tax advantages and more flexible regulations. Not being governed by French law, Stellantis will therefore not be subject to the governance rules of the Afep Medef code, in particular in terms of remuneration and various emoluments. The exact amount of the commission granted to Carlos Tavarès for having carried out the operation is, in this regard, eagerly awaited.

An unbalanced rapprochement

Be bigger and therefore have more resources to cope with changes in the automotive sector, which will have to invest massively to switch to electric. This is the official explanation put forward to justify this merger, which will be done through an exchange of shares and which is presented as being “50/50”.

The Italians, that is to say the Agnellis with their holding company Exor, will hold 14.6% of the shares, and the French camp (the Peugeot family and BPIFrance) will have the same amount of shares.

→ READ. Fiat, a dynastic story

But some shareholders consider this unbalanced merger and especially advantageous FCA which had already tried to marry Renault, before being rejected by the French government. “ This merger is a takeover by the Italians without paying a control premium », Affirms Denis Branche, deputy managing director of the management company Phitrust, which is opposed to this merger.

Fears about employment

According to him, PSA is indeed showing better financial and environmental performance (lower CO emissions2 per vehicle) than the Italian-American group. Phitrust points to the risks of social breakdown, especially as the new group has continued to increase the amount of expected synergies. They are now around 5 billion euros.

In Italy, FCA’s seven assembly sites are, in fact, known for their bloated workforce (60,000 employees), but the group has received 6 billion euros from the Italian state, in the form of a loan guaranteed. This “Will make it politically almost impossible to rationalize underutilized Italian factories, and the French factories of PSA could then become the adjustment variable, leading to heavy job losses”, emphasizes Denis Branche.

In total, Stellantis has around fifty assembly plants, half of which are in Europe. The rationalization projects therefore promise to be rather complex, but undoubtedly inevitable in a shrinking automotive market. Many questions also arise on the future commercial strategy of the new group (such as the entry of PSA on the American market), but are still unanswered.

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