By Ben Dummett, Nick Kostov and Christina Rogers
Fiat Chrysler Automobiles NV and Peugeot maker PSA Group of
France are in talks over a potential combination, according to
people familiar with the matter -- a deal that could create a
roughly $46 billion trans-Atlantic auto giant.
The merger pursuit comes as the world's largest auto makers try
to restructure their businesses as cost pressures mount and the
global car market slows down after a period of heady growth.
Auto-industry consolidation has long been a perennial theme,
especially in Europe, where a crowded marketplace and stringent
tailpipe-emissions rules make it difficult to earn money. Auto
makers are also under intense pressure to innovate with electric
vehicles and self-driving technology, forcing collaboration between
traditional rivals to share the investment load.
But in practice, consolidation has been far tougher to achieve
because political concerns and power struggles often derail
potential deals.
A possibility PSA and Fiat Chrysler are discussing, said one of
the people familiar with the talks, is an all-share merger of
equals. Peugeot Chief Executive Carlos Tavares would lead the
combined auto maker as its CEO, while John Elkann, Fiat Chrysler
chairman and the head of the Agnelli family, which controls the
Italian-U.S. auto maker, would assume the same role at the new
company, this person said.
Talks are fluid, one of these people said, and other options or
terms could be considered. There is no guarantee that any final
agreement will be reached.
The proposed combination comes months after Fiat Chrysler
dropped an earlier offer to merge with Peugeot rival Renault SA of
France. That deal fell apart after Fiat Chrysler failed to win the
full backing of the French government, a big Renault shareholder,
and Renault's alliance partner Nissan Motor Co.
While Fiat Chrysler had earlier this year explored a potential
tie-up with Peugeot, as previously reported by The Wall Street
Journal, Mr. Elkann favored a deal with Renault, believing it
delivered more synergies and a better geographic fit, people
familiar with his thinking said.
After talks fell apart, Mr. Elkann left the door open for
discussions to resume. But those prospects have dimmed in recent
weeks with Renault and Nissan still trying to hash out a deal to
restructure their global alliance and Renault recently firing its
CEO. The French car maker is now in a search for a successor.
Meanwhile, pressure is mounting on Mr. Elkann, who also leads
Exor NV, the holding company through which the Agnelli family holds
a 29% stake in Fiat Chrysler.
Under Mr. Elkann, Exor has sought to diversify in recent years,
aiming to trim reliance on Fiat Chrysler. Exor bought a reinsurance
company in 2015 and owns 23% of luxury-sports-car maker Ferrari NV,
among other investments.
Exor called a board meeting for Wednesday, according to a person
familiar with the plans. PSA has also convened an extraordinary
board meeting near Paris on Wednesday, according to people familiar
with the matter.
Representatives for Fiat Chrysler, Peugeot and the Agnelli
family declined to comment. Both Peugeot and Fiat Chrysler are
major forces in Europe, so any proposed combination could face
regulatory challenges.
Peugeot's Chinese and French ownership stakes would likely draw
attention in the U.S., where the Committee on Foreign Investment in
the United States has looked closely at Chinese-related deal making
involving U.S. companies and technology. The Trump administration
has focused on U.S. manufacturing, including the auto industry --
though the modest 12.2% stake that China's state-run Dongfeng Motor
Group Co. holds in Peugeot might not cause much alarm.
A combination, if achieved, would lift Peugeot and Fiat Chrysler
in the auto industry's global standing, offering them added scale
and potential cost-cutting opportunities. The two companies
together sold 8.7 million cars last year, which would have ranked
their combination at No. 4, just ahead of General Motors Co.'s 8.4
million vehicles sold.
There would still be some distance between a combined Fiat
Chrysler-Peugeot and the world's top three auto makers.
Volkswagen AG sold 10.8 million vehicles last year, about the
same as the alliance between Renault, Nissan and Mitsubishi Motors
Co. No. 3 Toyota Motor Corp. tallied 10.6 million vehicles.
Peugeot's Mr. Tavares has been eager to expand in the U.S.,
where the French brand has been absent for almost three decades. He
has outlined plans to eventually reintroduce the nameplate in the
U.S., but a tie-up with Fiat Chrysler would bring with it wide
access to the U.S. market. Fiat Chrysler dealers selling the
popular Jeep and Ram brands could potentially offer Peugeot models
as well.
As CEO of the combined auto maker, Mr. Tavares would bring a
proven record as an operator. In 2017, he led the company in its
acquisition of GM's then-money-losing Opel division and has since
restored it to profitability.
A deal would give Fiat Chrysler more exposure to Europe, where
Peugeot sold 2.5 million vehicles last year, compared with one
million for Fiat Chrysler. The Italian-American company, however,
has tried in recent years to lessen its dependence on the
Continent. A combined Fiat Chrysler-Peugeot would sell almost as
many vehicles in Europe as Volkswagen, which leads the market with
a 24% share.
The go-it-alone strategy would also be risky for Fiat Chrysler,
which is struggling to absorb the higher costs of meeting Europe's
emissions requirements and invest in new technologies, such as
electric and self-driving cars. Already, the Italian-American car
company is facing stiff fines for failing to meet regulatory
requirements and is heavily reliant on truck sales in North America
at the same time the U.S. car market is cooling.
--Eric Sylvers contributed to this article.
Write to Ben Dummett at ben.dummett@wsj.com, Nick Kostov at
Nick.Kostov@wsj.com and Christina Rogers at
christina.rogers@wsj.com
(END) Dow Jones Newswires
October 29, 2019 19:27 ET (23:27 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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