Photo: Reuters
Photo: Reuters

Fiat Chrysler-PSA merged entity likely to have Chinese major shareholder

  • The companies say the move would generate billions in savings without factory closures
  • Under the preliminary terms of the deal, the Peugeot family will be able to increase its stake in the new firm by buying shares from France or from Dongfeng

BEIJING : The merged entity of Fiat Chrysler Automobiles NV and France’s PSA Group is likely to end up with a major Chinese shareholder, as carmaker Dongfeng Motor Corp. is seen hanging onto its stake in the French company.

China’s state-owned enterprises typically invest for the long term and for access to their partners’ capabilities and technologies, said Bill Russo, founder of Automobility Ltd., a Shanghai-based advisory firm. It’s unlikely Dongfeng will use PSA and Fiat Chrysler’s merger to exit, he said.

“Chinese SOEs need the capability pipelines from foreign partners to stay relevant in a market that requires complex vehicle and systems technology integration skills that they generally lack," Russo said.

Dongfeng got its 12% holding in PSA as part of a 2014 deal that gave struggling PSA better access to the Chinese market, a stake currently valued at about $3 billion. With PSA and Fiat Chrysler now carrying through on their plan to combine, Dongfeng could wind up owning about 6% of the new entity.

A representative for Dongfeng declined to comment.

Dongfeng’s access to Fiat Chrysler’s assets through the merger is unlikely to be a major worry for US authorities, Russo said, because the Italian-American carmaker doesn’t have a “high-tech profile" that would risk a transfer of strategic technology to China.

Still, Yale Zhang, founder of consultancy AutoForesight Shanghai Co., said such “non-auto industry elements" make it harder to predict whether Dongfeng will remain a shareholder.

Under the preliminary terms of the deal, the Peugeot family—another of PSA’s biggest shareholders—would be able to increase its stake in the new company by buying shares from France or from Dongfeng.

Separately, Changan Automobile Co., which makes DS brand cars with PSA in China, plans to sell its share of their 50:50 joint venture, according to a Chinese media report citing a statement posted by a local asset exchange in Chongqing. A Changan representative didn’t immediately comment.

Responding to the report, PSA said it’s fully committed to China and that its DS brand will continue its presence and development in the country. PSA will provide more information on the matter at a later date, according to a statement sent via Wechat message.

Meanwhile, Fiat Chrysler and PSA said the 50:50 merger of their operations would generate billions in savings without factory closures as it creates the world’s fourth-largest car manufacturer.

In a joint statement the carmakers said their boards of directors “have each unanimously agreed to work towards a full combination of their respective businesses by way of a 50/50 merger".

The merger, which the firms said will result in a company with combined sales of nearly €170 billion ($190 billion) per year and €11 billion of operating profits, would help produce the scale needed in an industry facing slowing demand and which must invest billions to develop electric vehicles.

The merger would be achieved via the creation of a parent company in the Netherlands in which the shareholders of each current group would own half. The Dutch-based parent company would have balanced representation and a majority of independent directors with FCA’s John Elkann as chairman and PSA’s Carlos Tavares as CEO and member of the board.

A merger would create significant savings as both firms share the costs of developing electric vehicles that are expected to dominate personal transportation in the future as the world strives to reduce carbon emissions to limit climate change.

While investors cheered when the automakers first confirmed their talks on Wednesday, with Fiat Chrysler shares in Milan rising 9% and PSA shares adding 4% in Paris, the reception to Thursday’s details was quite different. PSA shares fell nearly 9% as trading got under way in Paris while those in Fiat Chrysler jumped 10.6% in Milan.

The tie-up would make the new carmaker the fourth largest in terms of sales behind Volkswagen, Renault-Nissan-Mitsubishi and Toyota.

bloomberg

AFP contributed to this story

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