PSA and FCA confirm 50:50 merger

Groupe PSA and FCA have agreed to merge. They have signed a binding combination agreement providing for a 50/50 merger of their businesses to create the fourth largest global automotive OEM by volume and third largest by revenue.

The combined company will have annual unit sales of 8.7 million vehicles, with revenues of nearly €170bn, recurring operating profit of over €11bn and an operating profit margin of 6.6 per cent, all on a simple aggregated basis of 2018 results. The strong combined balance sheet provides significant financial flexibility and ample headroom both to execute strategic plans and invest in new technologies throughout the cycle.

The new business will be led by a board comprised of 11 members. Five board members will be nominated by FCA and its reference shareholder (including John Elkann as chairman) and five will be nominated by Groupe PSA and its reference shareholders (including the senior non-executive director and the vice chairman).

Carlos Tavares will be chief executive officer for an initial term of five years and will also be a member of the board.

The combined entity will have a balanced and profitable global presence with a highly complementary and iconic brand portfolio covering all key vehicle segments from luxury, premium, and mainstream passenger cars through to SUVs and trucks & light commercial vehicles. This will be underpinned by FCA’s strength in North America and Latin America and Groupe PSA’s solid position in Europe. The new Group will have much greater geographic balance with 46 per cent of revenues derived from Europe and 43 per cent from North America, based on aggregated 2018 figures of each company. The combination will bring the opportunity for the new company to reshape the strategy in other regions.

The efficiencies that will be gained from optimizing investments in vehicle platforms, engine families and new technologies while leveraging increased scale will enable the business to enhance its purchasing performance and create additional value for stakeholders. More than two-thirds of run rate volumes will be concentrated on two platforms, with approximately three million cars per year on each of the small platform and the compact/mid-size platform.

These technology, product and platform-related savings are expected to account for approximately 40 per cent of the total €3.7bn in annual run-rate synergies, while purchasing – benefiting principally from scale and best price alignment – will represent a further estimated 40 per cent of the synergies. Other areas, including marketing, IT, G&A and logistics, will account for the remaining 20 per cent. These synergy estimates are not based on any plant closures resulting from the transaction.

It is projected that the estimated synergies will be net cash flow positive from year one and that approximately 80% of the synergies will be achieved by year four. The total one-time cost of achieving the synergies is estimated at €2.8bn.