Fiat Chrysler Automobiles and the PSA Group have signed a binding merger agreement. The deal will create the world’s fourth-largest OEM, with an estimated stock market value of $47bn.
The agreement was signed by PSA CEO Carlos Tavares and FCA chairman John Elkann.
The tie-up brings together two of the most famous dynasties in global car production, the Italian Agnelli family and the French Peugeot family.
PSA and FCA stated that the new company will have an 11-person board, with five appointed members from each company, including labour representatives.
Tavares will become CEO of the merged entity for an initial five-year term and will have the eleventh seat on the board. No shareholder would have the power to exercise more than 30% of the votes cast at shareholder meetings.
As part of the deal, Chinese company Dongfeng Group will reduce its 12.2% stake in PSA to 4.5%. This is thought to be related to the deal gaining regulatory approval in the US.
The merged companies are aiming to achieve annual cost savings of €3.7bn (£3.14bn).
As with similar agreements between carmakers, this will be driven by leveraging cross-company synergies in a 40-40-20 split, covering vehicle platform sharing, group part sourcing, and joint administration, IT and logistics operations (as done with Renault-Nissan-Mitsubishi).
The tie-up is not expected to result in any plant closures, although such administrative streamlining would likely result in related job losses.
Vehicle brands involved in the agreement include Peugeot, Citroen, Opel, Vauxhall, Fiat, Jeep, Dodge, Ram, Chrysler, Alfa Romeo and Maserati. According to LMC Automotive, about 8.7m units were produced under these brands in 2018, although total production capacity is said to total about 14m units.
The deal is expected to once again give PSA access to the US market, without the need to develop a ground-up dealership network. The Peugeot brand was withdrawn from the American market in 1991 after years of lacklustre sales.
Fiat will be looking to access efficient engine technologies and new platform technologies. A lack of liquidity has limited related development in both areas.
It is likely the tie-up will result in a rationalisation of brands and product lines across both companies, either by region or model type, so both are not drawn into direct competition in either area.
Along those same lines, it will be interesting to see if the combined companies avoid common pitfalls of such arrangements, including the financially-enticing and yet brand destroying strategy of badge engineering, which sees models from other brands simply rebadged and sold under another marque.
A new name for the merged company is expected to be announced in coming months.