Fiat Chrysler Leaps on Merger News, Peugeot Shareholders, Suppliers Fret
October 31 2019 - 8:11AM
Dow Jones News
By Max Bernhard
Fiat Chrysler Automobiles NV (FCA.MI) appeared to get the better
deal in its merger agreement with Peugeot SA (UG.FR), analysts said
Thursday, with the Italian-American car maker's shares soaring
while the French company's plunged.
"It's not hard to understand this reaction when you consider the
job done by Peugeot management over the last five years, while Fiat
Chrysler management have overseen a tired product line and little
in the way of innovation, in response to the challenges that are
facing the sector as a whole, which include, but aren't confined
to, electric and driverless cars," CMC's Michael Hewson said in a
note.
Fiat Chrysler and Peugeot shareholders will each initially own
50% of the new company, with John Elkann, Fiat Chrysler's chairman,
as chairman and Peugeot's Chief Executive Carlos Tavares as CEO.
Fiat Chrysler will pay a special dividend of 5.5 billion euros
($6.1 billion) and distribute its unit Comau to shareholders, while
Peugeot will distribute its 46%-stake in auto parts maker Faurecia
SE (EO.FR) to its own shareholders.
Citi analyst Raghav Gupta-Chaudhary said the deal appears to
favor existing Fiat Chrysler shareholders who benefit from the cash
distribution, while Peugeot's shareholders "are being asked to
remain patient."
At 1126 GMT Fiat Chrysler shares were up 8.6%, while Peugeot was
down 14%.
The impact of the deal extends beyond the car makers, with
several suppliers trading lower following the news, which would
create one of the world's largest auto makers by volume with a
market value of $48.4 billion. Faurecia was down 2.9% and Valeo SA
(FR.FR) traded 2.4% lower. German suppliers Schaeffler AG (SHA.XE),
Leoni AG (LEO.XE) and Continental AG (CON.XE) were down 5.1%, 3.2%
and 2.1%, respectively.
"Part of the motivation for a PSA-FCA deal are procurement
savings," said Kai Mueller at Bank of America Merrill Lynch.
The deal is bad news for suppliers who have already been
struggling with pressure for discounts from car makers amid a
global slowdown in demand. Consolidation in the sector means car
manufacturers could ask for higher discounts based on higher
volumes.
Write to Max Bernhard at max.bernhard@dowjones.com;
@mxbernhard
(END) Dow Jones Newswires
October 31, 2019 07:56 ET (11:56 GMT)
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