Without factory closures, less government ties and independence from other entangled partnerships, the proposed merger of Fiat Chrysler Automobiles NV with French carmaker Groupe PSA is more likely to succeed than Renault SA, according to experts. .
Much of the complexity surrounding Fiat Chrysler's proposal with Renault of France, including its longstanding relationship with the French government and its alliance with Nissan Motor Corp. from Japan, do not exist with PSA, which is home to Peugeot and Citroën. This made the proposal detailed Thursday between the FCA and PSA to create the fourth largest automaker with the size to invest in future technologies is more likely to materialize, experts say.
"Economically speaking, Renault is the best deal that can be made. However, it will take too long, ”says Ferdinand Dudenhofer, professor of automotive economics at the Center for Automotive Research at the University of Duisburg-Essen in Germany. "If you have discussions and discussions go nowhere, it is too high a risk to finalize the deal. Then it is better to take the second best deal.
The FCA and PSA did not provide a time limit for their rapidly progressing deal, but the next a step is their advice to sign a memorandum of understanding.In an email to employees received by The Detroit News, Manley wrote on Thursday that he hoped one would be achieved "in the coming weeks" – and stressed that the expected "synergies are NOT based on closure of factories. '
In structural terms The proposal earlier this year was similar to Renault's.
The combination with PSA would create one of the largest automakers in the world. If we work together, it would generate billions of dollars in "synergies" from combining investment in platforms for vehicles, power engines and technologies In the case of PSA, annual cost savings were estimated at $ 4.1 billion.
The merger will not reduce the number of production companies and the shareholders of both companies will receive 50% of the shares of the new company that will be listed on the stock exchanges in Milan, New York and Paris. Based in the Netherlands, the combined company will maintain large operations in Auburn Hills, Paris and Turin, Italy, home of FCA's predecessor, Fiat SpA and the founding Aneli family, now represented by Fiat Chrysler chairman John Elkan.
One definitive similarity: The French government has a double-digit stake in both PSA and Renault. The state-owned investment agency holds 15% of the shares in Renault, while the state-owned wealth fund BPIfrance is slightly smaller with 12% of PSA shares. In June, Elcan cited France's "political conditions" as the motive for the Italian-American carmaker, which withdrew its proposal for Renault.
French Minister of Finance Bruno Le Mayer said his office wanted to take the time to ensure that the deal was made "the right way." The government is seeking to protect itself from politically powerful business closures and job cuts, often linked to industrial mergers. Although Le Maire has indicated the need to maintain French jobs, this time it is a scourge for a deal.
"This merger between Peugeot and Fiat could create the world's fourth-largest automotive champion," he said Thursday in French. According to Reuters, the Treasury is giving us critical dimensions to address the dual challenges of autonomous vehicles and electric cars.
Both companies needed partners to compete in the global industry ahead, says Eric Gordon, a professor at the Rossi Business School at the University of Michigan.
With Renault, "the French government's reaction was so severe that it ended any chance of a merger," Gordon said. "This time they may have brass knuckles, but the fist is behind their back. They need French carmakers as global competitors or this will also be the end of jobs. And when they used brass knuckles, it didn't happen. "
In addition, the French government has influenced two of the directors on board Renault and their relationship has been around for decades. State involvement in PSAs began in 2014 when they agreed to participate in a bailout plan.
But Renault's relationship with Nissan may have also dissuaded the government , said Carla Bajlo, CEO of the Automobile and Car Services Center The deal came amid escalating tensions in Renault's 20-year alliance with Nissan and Mitsubishi Motor Corp. following allegations of financial misconduct against longtime CEO Carlos Gosn, who denies the allegations.
" That alone created problems, "Bailo said." As a result, the French government has not been so strongly supported. All sides were not aligned well. "
And the Renault deal did not have a strong leader to effect the merger, experts said. But PSA is bringing its CEO, Carlos Tavares, 61, who will head the combined company and hold one of the 11 seats on the board. who learned how to restructure a business under Ghosn, took over the brands of General Motors Co., which are losing Opel and Vauxhall brands in 2017, and turned it into a $ 18 billion business.
The FCA Elkann will chair the Council of the new company and sits on four FCA appointments, in addition to Tavares, PSA will nominate five more members
FCA CEO Mike Manley, six years younger than Tavares, is likely to become CEO and head of North America operations in Auburn Hills, according to two sources.
"I'm delighted to be able to work with Carlos and his team in this potentially changing industry ambition," Manley said in a statement. "We have a long history of successful collaboration with Groupe PSA and I am convinced that together with our great people we can create a world-class global mobility company."
Companies expect their convergence to realize some of the highest margins based on the strengths of the FCA in North and Latin America and the PSA in Europe. The FCA will distribute a special dividend of $ 6.1 billion (€ 5.5 billion) to its shareholders and a stake in its Comau robotics business. PSA will distribute its 46% stake in car supplier Faurecia to its shareholders.
With PSA already manufacturing electric vehicles, the FCA will also be able to take advantage of these models in the hope of avoiding huge fines from carbon footprints in Europe, experts
However, investors may need from a more persuasive deal: Although Fiat Chrysler shares closed 2.3% on Thursday, Peugeot SA's shares fell nearly 13% in Paris.
"I think the market has acknowledged the deal. It is much better for Fiat," said Eric Schiefer, CEO of the Los Angeles Patriarchal Organization, a private equity technology company. "This allows Fiat to compete in this new an era of electric and those public policies that go with it. "
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