By Stuart Burns
It is not often that the world’s largest carmakers engage in mergers and acquisitions among themselves.
Fiat Chrysler (NYSE:FCAU) and Renault Nissan (OTC:RNSDF) announced a $35-billion plan to merge back in May 2019. The merger would have created the third-biggest carmaker, behind Volkswagen (OTCPK:VWAGY) and Toyota (NYSE:TM).
But within 10 days of the announcement, FCA pulled out and it came to nothing.
Take two: Fiat Chrysler, PSA to merge
Now, still keen for a tie-up, FCA has announced it will merge with the French group PSA (OTCPK:PEUGF).
PSA is the owner of brands like Peugeot, Citroen, Vauxhall, and DS. The deal, valued at $50 billion, would form a 50/50 partnership with a turnover of some €170 billion ($200 billion) a year and annual production of some 8.7 million units.
As such, the deal would put them, again, third. By other measures, they would be fourth, behind at least Volkswagen and Toyota, and possibly the Renault-Nissan-Mitsubishi Alliance (if you consider that one entity).
The combined FCA-PSA company will be renamed Stellantis. The name comes from the Latin “stello,” meaning “to brighten the stars.” (Yes, I know, who thinks up these names?)
According to AutoExpress, based on 2018 figures, Stellantis will have approximately 46% of its revenues from Europe and 43% from North America. PSA has long-held ambitions to expand into North America. As such, a merger with FCA would make that much easier.
Electrification tech, small vans
PSA on the other hand holds two aces up its sleeve.
First, it has its valuable electrification technology developed for the European market. Second, something that has been the subject of E.U. scrutiny, both companies have lucrative small van segments.
Between them, FCA and PSA account for a third of Europe’s van market. That is way ahead of the 16% held by Renault or Ford, their closest competitors, the Financial Times reports.
Although the E.U. is negotiating concessions out of the two companies to ensure a level-playing field, their focus appears primarily on the van market. On that front, reports suggest the conditions are not onerous.
The E.U. is not requiring the new group to sell off plants or brands, simply widen after-sales dealer access for other brands. In addition, they are asked to share some production capacity with existing partners, like Toyota. That way, they can allow more competition from smaller players in the sector.
Meanwhile, the global overlap is modest. As such, there should be few competition approval barriers outside of Europe to overcome.
There will be special dividends for shareholders of both companies, plus proceeds from the sale of a 46% stake in car parts maker Faurecia worth some €5.6 billion ($7 billion) after the deal is finalized, estimated to be sometime in the first quarter of 2021.
Savings made from synergies are always a big part of the justification for mergers of like companies. In this case, the firms individually bring assets to the party that the other does not have.
So, for once, the whole may actually prove to be more than the sum of the parts.
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.