PSA-FCA Merger Doesn't Need Any Changes: Tavares

PSA Group CEO Carlos Tavares has bucked the notion that his company’s merger agreement with Fiat Chrysler Automobiles needed its terms massaged. Living through the coronavirus should be proof enough that automotive partnerships are essential for weathering the coming economic storm, and that governments shouldn’t stand in the way — or so goes the theory.

During PSA’s annual shareholder meeting on Thursday, the CEO suggested that the poor condition the global auto industry finds itself in makes this a poor time to discuss the issue. Tavares believes the unsavory conditions created by COVID-19 makes cost savings even more vital and that partnering with another automaker is its best bet to stay healthy. “The merger with FCA is the best among the solutions to cope with the crisis and its uncertainties,” he said.

Earlier this month, France’s Phitrust (a PSA Group shareholder) said the conditions for both companies have changed immensely since the deal was struck over the winter, adding that the terms should reflect that.

“Already, in December 2019, the respective situation of the two groups hardly seemed to us to justify a 50/50 merger, taking into account the planned disposals and dividends distributions, the respective situation of the two groups in industrial (and social…) terms, their level of preparation for the next environmental standards and the changes imposed on the automotive sector,” Phitrust said in a release preceding PSA general meeting.

“This situation appears today to be very different, and in any case even further away from that which was presented at the time of the announcement of the merger.”

So basically this investor feels FCA isn’t looking particularly tech savvy (or green) and it’s worried about losing money. FCA is also supposed to get a state-backed 6.3 billion euros ($7.1 billion) credit facility in Italy. However, PSA seems terrified of giving the French government any excuse to get more involved with the business, claiming it isn’t in a stable enough position to not need any help. Yet both have seen a sizable dip in their share price and investors want assurances that they will continue to make money all the time, no matter what happens. Automakers aren’t really any different. There could be an atomic war and someone in a suit would crawl out from behind a burning pile of rubble in an attempt to negotiate more favorable terms.

According to Automotive News, Tavares said it was a matter of honor:

“We have to act as professionals. We have signed a binding agreement,” Tavares said on Thursday in response to a question from Phitrust on whether the terms should be changed.

“The agreement is based on a balance on which we have worked hard and for a long time. It’s a fine, relevant balance vis-a-vis the two companies, the shareholder base and the countries. Today is not the time to look at things you raise in your question,” Tavares said.

FCA Chairman John Elkann has said the terms of the deal “are set in stone as binding contracts in their nature are.” Elkann was speaking on May 20 in a conference call after the annual shareholder meeting of Exor, the Agnelli family holding company which controls FCA.

Tavares also said that investors need to look at the big picture, noting that Fiat Chrysler was looking pretty damn good before being slammed by COVID-19. PSA Group fared better because it turtled (and was already in the midst of restructuring).

Executives say the merger will initially create synergies of at least 3.7 billion euros ($4.2 billion), ideally within the first 4 years of joining forces. Most of that is assumed to come by way of purchasing savings and product sharing — the latter of which has become an issue for EU anti-trust investigators. Having looked into the matter for months, the European Union confessed it had real concerns with the duo’s van sales.

It suggested the alliance could cause harm in over a dozen EU nations and the United Kingdom. But the rest of the world is pretty much on board with the arrangement as-is. Tavares has said support from other countries is a sign that everything is hunky-dory, though there’s definitely a chance that Europe could cause some problems. We just don’t think it will result in anything more than a few amendments to the deal. Some changes have been made already, though.

In May, PSA and FCA announced they wouldn’t pay a planned 1.1 billion-euro ordinary dividend on their 2019 results; apparently the impact of the coronavirus was just too great.

[Image: afapress/Shutterstock]