Status of PSA-FCA Merger Questioned, French Half Says Everything's Fine
Following reports from France that the merger between PSA Group and Fiat Chrysler Automobiles could be upended by the coronavirus, PSA announced that the media got this one all wrong. While the French automaker admitted that economic problems stemming from the outbreak are indeed concerning, it reiterated its commitment to safeguarding employment while adding that a merger makes even more sense now than before.
Still, there are valid reasons to question the current state of the merger agreement established in December via a memorandum of understanding. COVID-19 has sent global markets into a tailspin, with PSA and FCA seeing their share prices seesawing in the wrong direction over the last two weeks.
While the last few days has seen both companies regaining some of their lost value, neither are sitting pretty. Fiat Chrysler went from about $15 dollars per share in October, when the merger was announced, to roughly $7.50 today. Over the same period, PSA Group went from nearly $30 per share to just $13.72. Those in the know say this has not deterred negotiations; apparently, the businesses’ legal representation have continued seeking authorization from antitrust authorities so the merger can go through.
The Agence France-Presse news agency, however, reports that the financial impact of the pandemic will — at the very least — require the automakers to reassess the pact’s finer details, citing numerous insider sources asking to remain anonymous. Too much has changed over the past few months for there to be any alternative.
“Assumptions about valuation of the companies, revenues projections, sales for 2020 and beyond for both companies, all those mathematical assumptions that were made during the talks essentially have to be re-evaluated now,” explained Kelley Blue Book’s Karl Brauer.
The two groups planned a merger of equals, which involves paying a dividend of 1.1 billion euros to their respective shareholders for 2019.
FCA is also expected to pay an extraordinary dividend of 5.5 billion euros, while PSA must distribute to its shareholders its 46 percent stake in French equipment manufacturer Faurecia.
But Faurecia’s market capitalization has shrunk by at least a third since the merger was announced, which means the value of PSA’s stake lost nearly 1 billion euros as of Monday.
“We will have to rebalance things between shareholders if we still want to talk about a merger of equals,” said one of the financial sources.
And an industry expert, who asked not to be named, said, “I have always found that parity is very much to Fiat’s advantage.”
On Tuesday, French Economy Minister Bruno Le Maire warned all companies to exercise the maximum restraint possible on the payment of dividends. “It is a time when all the money has to be used to run businesses,” he said, adding that this would be doubly true of any businesses seeking government aid during the coronavirus pandemic.
“If PSA or FCA appeal to the state, how could they justify asking taxpayers for billions and distributing billions to their shareholders at the same time?” Gregori Volokhine of Meeschaert Financial Services told AFP.
For now, neither side is answering questions about how the merger might change. Considering how uncertain the next couple of months look, that’s not all that unreasonable, either. It’s doubtful the automakers are even in a position to effectively renegotiate. The industry could bounce back quickly after COVID-19 withdraws or stay in a prolonged state of decline if complications persist and factories take longer to resume operations. That’s a hell of a place to try and reopen the discussion.
FCA is silent on the matter, but PSA at least admits the status and schedule of the merger hasn’t changed. Expect that to be the narrative for at least the next few months.
[Image: PSA Group]
Schmitt trigger on Mar 27, 2020
If we are truthful to ourselves, everyone has made -at least once- a big mistake in life which ended costing him/her dearly. When one finally realizes that things won't improve in the future, and it is better to cut your loses now to carry on with the rest of your life, one does indeed feel that a heavy weight has been lifted from your shoulders. That situation is called "experience". It is how we learn from our mistakes. Like the experience of having been a FIAT owner.
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