STLA Stellantis NV

By Eric Sylvers and Nick Kostov 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (December 19, 2019).

After finalizing merger terms to form the world's third-largest auto maker, Fiat Chrysler Automobiles NV and Peugeot maker PSA Group face the challenges of securing government backing to complete their trans-Atlantic tie-up.

The two companies said Wednesday that they had signed a binding merger agreement fixing the financial terms of a deal first announced in October. Attention now turns to efforts by the combined company -- which will house the Jeep, Ram, Fiat and Peugeot brands -- to win over regulators in the U.S. and Europe.

Securing those approvals is crucial to completing a deal both companies are relying on to help them navigate mounting cost pressures in the global auto business. Car makers are investing billions of dollars into electric vehicles as governments enact stricter emissions regulations. They also face large investments to develop autonomous driving technology.

One of PSA's biggest investors is China's state-run Dongfeng Motor Group Co., which initially raised concerns that the U.S. could seek to block the deal amid trade tensions. Dongfeng currently owns about 12% of PSA, but the companies said Wednesday that the Chinese group would sell part of its holding to end up with a stake of 4.5% in the combined company.

Dongfeng "understood what needed to be done" to smooth the approval process, PSA Chief Executive Carlos Tavares said. "This is, of course, a way of supporting this merger and making sure that we don't have bumps on the road."

The companies are confident the lower Chinese shareholding, combined with Dongfeng's lack of board representation, won't present a problem with U.S. regulators, according to people familiar with the negotiations.

European regulators, meanwhile, will examine whether the combined company's hefty market share in Europe could stifle competition. Together, the companies will have more than 40% of the European Union market for light commercial vehicles. They will also have 41% of the market for passenger vehicles in Italy and 37% in France.

The companies expect getting through the regulatory process and completing the deal to take between 12 and 15 months.

Support from politicians and labor unions also must be maintained. French and Italian officials voiced support for the deal Wednesday, but both will likely watch closely for any moves that could impact the car makers' workforces in either country.

The auto makers have largely secured backing from labor unions on both sides of the Alps, and have given representatives from each company a spot on the combined company's 11-person board. Retaining that support could prove challenging as the companies seek to achieve the EUR3.7 billion of annual cost savings they have promised from the merger.

They hope to generate about 40% of those savings from using the same basic chassis to build vehicles from the two companies, which should reduce development and manufacturing costs. An additional 40% of the figure is expected to come from more favorable purchasing deals with suppliers. The remainder is to come from savings in other areas, including marketing, logistics and information technology.

The companies also confirmed Wednesday some executive positions at the combined business. John Elkann, chairman of Fiat Chrysler, will retain the post at the combined group. Mr. Tavares will be CEO while Fiat Chrysler CEO Mike Manley will hold a not-yet-announced senior executive position.

One item yet to be confirmed is the merged entity's name. The companies have ruled out using either of their existing names for the new business, according to people familiar with the matter.

On a call with analysts, one asked Mr. Manley if Fiat Chrysler had the rights to the "JEEP" ticker symbol, intimating that the new corporate name might include that of Fiat Chrysler's most profitable brand. Mr. Manley didn't weigh in on that possibility.

Write to Eric Sylvers at eric.sylvers@wsj.com and Nick Kostov at Nick.Kostov@wsj.com

(END) Dow Jones Newswires

December 19, 2019 02:47 ET (07:47 GMT)

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