• Bloomberg


The boards of French carmaker PSA Group and Italian American rival Fiat Chrysler Automobiles NV have approved a preliminary plan to merge, according to a joint statement, creating a combined automaker that would rank among the world’s largest.

Under the proposal, shareholders of each company would own 50 percent of the combined entity, the statement said.

Fiat investors would receive a dividend of €5.5 billion (¥665 billion), while PSA would distribute its stake in auto parts maker Faurecia SE, worth about €3.7 billion, to shareholders, according to the release.

The board will be made up of 11 members, with six from the PSA side including Chief Executive Officer Carlos Tavares, who will lead the new company, the statement confirmed. Fiat Chairman John Elkann will take the same role at the enlarged group, and the combined company’s corporate headquarters will be in the Netherlands where Fiat Chrysler is currently domiciled, people familiar with the matter said. Fiat Chrysler’s directors approved an agreement in principle Wednesday, pending a formal deal, they said.

The sides are said to envision synergies of around €3.7 billion and no plant closings, according to the statement. The plan authorized by PSA’s board called for negotiations of a binding memorandum of understanding that could last several weeks, said one of the people. PSA executives had been preparing to brief French unions Thursday morning, they said.

A merger of Fiat Chrysler and PSA, the No. 2 for car sales in Europe, would create a regional powerhouse to rival Volkswagen AG, with a stock market value of about $49 billion — comparable to Honda Motor Co.

The tie-up would also bring together two automaking dynasties, the billionaire Agnelli clan in Italy and the Peugeot family of France.

“It’s not as good a partner as Renault, but any partnership is good,” said Felipe Munoz-Vieira, an analyst with Jato Dynamics in Turin. Fiat Chrysler “is not facing very good times, and it seems it’s getting worse as the time passes,” he added.

Both PSA and Fiat Chrysler lag on investments in electrification and neither has a strong presence in China, but a combination could help them grow in the lucrative commercial vehicle market in Europe, Munoz noted.

Fiat Chrysler, which reports third-quarter earnings Thursday, is suffering in Europe with an aging Jeep lineup and a lack of SUVs under the Fiat brand, he said.

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