PSA, Fiat Chrysler Boards Back Binding Merger Agreement -- 3rdUpdate
18 Dezembro 2019 - 5:35AM
Dow Jones News
By Nick Kostov and Ben Dummett
Peugeot maker PSA Group and rival Fiat Chrysler Automobiles have
agreed a binding merger agreement that includes sweeteners to make
the trans-Atlantic tie-up more attractive to U.S. regulators and
PSA shareholders, the companies said Wednesday.
The two boards voted to sign a memorandum of understanding,
fixing the financial terms of the deal and the corporate-governance
structure of the combined company. The move marks an important step
in solidifying a merger that was announced in October. The tie-up
aims to create a $50 billion auto giant that would rank among the
world's largest car companies by sales.
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.
Among the terms added over the past several weeks were
agreements that China's state-run Dongfeng Motor Group Co. would
sell part of its 12.2% stake in PSA back to the French car maker
and that Fiat Chrysler would keep its Comau division at least until
the closing of the deal.
The Wall Street Journal on Tuesday reported that both companies'
boards had backed the agreement and the new deal terms added in
recent weeks.
Dongfeng's decision to reduce its stake in PSA is designed to
help the deal gain approval from the Committee on Foreign
Investment in the U.S., which is likely to review the merger
proposal at a time of trade tensions between the U.S. and China,
the people said. Dongfeng would end up with a roughly 4.5% stake in
the newly combined auto company and won't be entitled to a board
seat, they said.
"This is of course a way of supporting this merger and making
sure that we don't have bumps on the road," PSA Chief Executive
Carlos Tavares said.
The two sides also have changed the deal so Fiat Chrysler's
Comau division, a maker of robotics technology used in vehicle
manufacturing, will be spun off after the deal completes, rather
than before as previously planned. That will allow both PSA and
Fiat Chrysler shareholders to benefit from any sale of the Comau
division.
Jefferies has valued Comau at some EUR250 million ($279
million).
Both Fiat Chrysler and PSA shareholders must approve the deal
through a vote, likely to occur next fall. The companies said
Wednesday that the four largest shareholders in the new entity had
all pledged to vote in favor of the deal. Once the merger agreement
is signed, the companies will next need approval from both U.S. and
European regulators to move forward. They will also need the
backing of various banking authorities, since the companies own
financing operations across the globe. Both companies aim to have
the merger completed by the end of 2020.
The original proposal outlined terms in which Fiat Chrysler will
pay a special dividend of EUR5.5 billion to its shareholders. By
comparison, PSA will distribute to its shareholders the company's
46% stake in auto-parts supplier Faurecia, which is valued at EUR3
billion. The value difference raised concerns among PSA investors
that they weren't getting as good a deal as Fiat Chrysler
shareholders.
In vetting the merger proposal, PSA lawyers reviewed a recent
civil lawsuit filed by U.S. rival General Motors Co., accusing Fiat
Chrysler of paying bribes to union officials in the U.S. to win it
a more favorable labor-cost advantage. The attorneys, however,
agreed with Fiat Chrysler's assessment that the lawsuit was
meritless and ultimately decided it wasn't a major hurdle to the
deal, say people close to French car maker.
"Hopefully we will clear that very quickly and if not we will
vigorously defend it into the future," Fiat Chrysler's CEO Mike
Manley said.
U.S. regulators would be likely to latch onto Dongfeng's
ownership stake in PSA and its board seat as a red flag, when
reviewing the deal, especially given the Trump administration's
focus on the auto industry and Chinese intellectual-property theft,
said John Kabealo, a lawyer whose practice focuses on
business-related national security issues.
"That would trigger significant concerns," Mr. Kabealo said.
The Treasury Department, which handles press inquiries for the
Committee on Foreign Investment in the U.S., declined to comment,
saying it doesn't provide information on specific merger reviews or
whether a company has filed for one, a spokeswoman said.
If completed, the merger will create the world's fourth-largest
auto maker by number of vehicles sold, uniting the owner of brands
such as Dodge, Ram, Jeep and Alfa Romeo with a stable of brands
that includes Peugeot, Citroën, Opel and Vauxhall. The new company
will produce almost as many cars in Europe as Volkswagen AG, the
continent's largest car maker, and will have a large presence in
the U.S. and South America.
The two car makers previously said that John Elkann, Fiat
Chrysler's chairman, will become chairman of the newly merged
company, while PSA Chief Executive Mr. Tavares will be CEO with an
initial five-year term.
Ben Foldy contributed to this article.
Write to Nick Kostov at Nick.Kostov@wsj.com and Ben Dummett at
ben.dummett@wsj.com
(END) Dow Jones Newswires
December 18, 2019 03:20 ET (08:20 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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