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‘Merger Of Equals’…

31 October 2019 by jbchevrel

This is not the first time I write about a merger involving Fiat Chrysler Automobiles N.V. (FCAIM– 5y 113bp -7). Earlier this year, Peugeot SA (PEUGOT– 5y 100bp +3) had been rumoured to have appetite for M&A. The CEO Carlos Tavares had reportedly the backing of the Peugeot family (big stake - ~12%) for it (19 Mar – Les Echos). Back then it was reported that Tavares was seeking a deal that to the company's footprint with Fiat Chrysler Automobiles (FCAIM) or Jaguar Land Rover Automotive PLC (JAGLN) seen as potential candidates. “We supported the Opel project from the start. If another opportunity comes up, we will not be braking, Carlos knows that. The Opel operation is an exceptional success, we didn't think that the recovery could be as fast" said Robert Peugeot. PEUGOT had indeed acquired Opel-Vauxhall from GM in 2017 and has boosted its profitability. At the time, FCAIM was seen as the strongest candidate for a merger, following the remarks of Manley at the Geneva Auto Show. PEUGOT had effectively approached FCAIM about combining the two companies (22 March – WSJ). Talks had broken down after the Agnelli family rejected any transaction financed with PEUGOT stock and FCAIM was concerned over any greater mature European market exposure. Then in May, some conflicting headlines came about a purchase of JAGLN. Press Association back then reported that a JAGLN sale could be imminent, citing unidentified people at the company. PEUGOT spokesman then said the firm is in “no hurry” to make acquisition and could “stand alone,” adding that if an opportunity comes, co. will consider it. This week, PEUGOT and FCAIM have agreed to pursue an all stock 50-50 merger that would create the world’s #4 carmaker. What has changed? The press write that the French gov is more keen this time round, while it had been blamed for talk collapse earlier this year. PEUGOT shareholders will get €3bn special div from sale of 46% stake in Faurecia (EOFP – 5y 145bp +0). FCAIM shareholders will get €5.5bn. That is to create a group with revenues €170bn op profit €12bn sales 8.7m. Synergie-wise, they aim to save €3.7bn a year without fully closing any plant. To put in context of one-off cost €2.8bn. Management-wise, Tavares will be CEO for 5y and Elkann chairman.