PSA/FCA: the merger is a fact
On Tuesday, the boards of PSA (in Paris) and FCA (in Turin) gave their approval to the 50/50 merger between the French car manufacturing group and the Italian/American one. This morning, they both signed a binding combination agreement.
As a result, the new group will be the fourth largest in the world, with 8,7 million produced vehicles annually, behind the ‘big three’, the Renault/Nissan Alliance, Toyota, and Volkswagen.
At the end of October this year, both manufacturers had announced their ‘marriage’. The objective is to be big enough to withstand competition and the coming energy transition. With a yearly turnover of 170 billion euros, it is number three worldwide. In total, 400.000 employees will be working at the new automobile giant.
The new group will have fourteen brands in its portfolio. PSA is bringing in five brands: Peugeot, Citroën, DS, Opel, and Vauxhall. FCA has nine brands under its wings: Alfa Romeo, Fiat, Lancia, Maserati, Abarth, Chrysler, Dodge, Jeep, and RAM).
From the beginning, both parties have underlined the complementarity of the new group, both commercially and geographically. The new company will have its headquarters in the Netherlands, but its value will be noted on the stock exchanges of Paris, Milan, and New York.
Both to the French and the Italian government, the new group has committed itself that no factories will be closed or huge lay-offs will be organized. Nevertheless, the objective is to realize every year 3,7 billion euros in synergies.
At the moment, there are three major shareholders in the PSA group: the Peugeot family, the French state (via the investment bank Bpifrance), and the Chinese car manufacturer Dongfeng. They each detain 12,23% of the shares of PSA and will have 6,1% each in the new company. From the other side, the Agnelli family (through the Exor holding) will be the biggest shareholder.
The new board will consist of eleven members, five to be designated by PSA, five by FCA. Both Carlos Tavares (CEO of PSA), and John Elkann (president of the board of FCA) will be part of it, with Elkann being the new president of the board while Tavares becomes the CEO of the new group.
From the other nine members, seven have to be independent, while it has already been foreseen that one member comes out of the Peugeot family. Their holding (EPF/EPP) will be permitted to acquire shares of Dongfeng (DFG), which has signaled it wants to sell. Nevertheless, the increase can’t surpass 2,5% of the total share value.
The new strong man
When Carlos Tavares, former number two at Renault, went to PSA at the end of 2013, the company was in big turmoil. In some five years, the new CEO managed a complete turnaround into a company that has now five brands and a profit margin of 6-7% that is the envy of many of its competitors.
The man is a renowned cost-cutter and a shrewd tactician, and his success at PSA has made of him one of the leading CEOs in the car business. The way he turned around Opel/Vauxhall after acquiring it in the middle of 2018, is on the verge of prodigious.
Biggest challenge ever
But not everything he touches turns into gold: PSA’s position on the Chinese market is still very delicate, and the turnaround of Citroën still has to be consolidated, while DS is still struggling in a strongly occupied part of the premium market.
Now he stands before his biggest challenge ever. To steer PSA/FCA into strong profitability will be a very complicated task. Elected Man of the Year two weeks ago by Automotive News, he is counting on very close and intense cooperation with Englishman Mike Manley, CEO of FCA since the death of Sergio Marchionne.
Tavares’ intention is clear: “I hope that in 10 or 20 years the employees of PSA and FCA will remember those ‘two guys’ who were capable of respecting each other, of controlling their ego, and of having enough attention for their colleagues in the company.” Nice intentions.