GM General Motors Company

By Eric Sylvers in Milan and Nick Kostov in Paris 

Fiat Chrysler Automobiles NV and Peugeot maker PSA Group of France are moving forward with plans to cement their planned $50 billion merger in coming weeks, brushing aside concerns that a recent lawsuit by U.S. rival General Motors Co. could threaten the auto industry's biggest deal in decades.

The two companies wrote to their employees last week to say negotiations were progressing and they aimed to sign a memorandum of understanding soon. More than 50 people have been working on the merger project since Fiat Chrysler and PSA announced their deal at the end of October, the companies told employees in an internal document, a copy of which was viewed by The Wall Street Journal.

Fiat Chrysler and PSA updated their employees days after GM filed a racketeering suit alleging that Fiat Chrysler bribed U.S. union negotiators to gain a competitive advantage during the collective bargaining process in 2011 and 2015.

The GM suit directly accuses Sergio Marchionne, Fiat Chrysler's longtime chief executive who died last year, of authorizing bribes as the car maker sought to gain an advantage over GM by lowering its own labor costs.

While legal experts say GM's lawsuit faces an uphill battle, some financial analysts have said the accusations could slow down negotiations between Fiat Chrysler and PSA.

Fiat Chrysler has denied the allegations and called them "meritless."

The merger partners have discussed the lawsuit, but it is unlikely to throw the deal off track, according to people on both sides of the talks. PSA agrees with Fiat Chrysler's position that the claim is meritless, some of these people said, adding that lawyers and other specialists had examined GM's claim for the French side. PSA would likely be supportive of any countermove, such as a countersuit, that Fiat Chrysler could choose to make against GM, these people said.

If the contention drags on past the closing of the deal, PSA Chief Executive Carlos Tavares would be well qualified to deal with it, these people said. A countersuit from Fiat Chrysler would likely lead to a discussion between the two car makers, and Mr. Tavares developed a good working relationship with GM Chief Executive Mary Barra when buying the U.S. company's European business in 2017.

The accusations surprised both car makers, and people close to them have suggested that the lawsuit is an aggressive attempt by GM to gain leverage over Fiat Chrysler, either through financial damages or by making the merger harder to achieve. Fiat Chrysler has long sought a partner to help spread out the cost of developing new vehicles, a push that has become more pressing as global auto sales have peaked.

The GM suit relates to a long-running federal probe into corruption between leaders at the United Auto Workers union and labor-relations executives at Fiat Chrysler. UAW President Gary Jones stepped aside from his role in early November, days after federal prosecutors charged one of his top aides with embezzling union dues. Fiat Chrysler has said the wrongdoing was perpetrated by a small group of individuals acting in their own interest.

"The timing of the suit has everything to do with revelations from the U.S. government's ongoing investigation and nothing to do with the proposed FCA-PSA merger," GM said in a statement.

Shareholders in Fiat Chrysler and PSA will each collectively own 50% of the new entity that will emerge from the merger, which is expected to close by the end of 2020. The new company will produce almost as many cars in Europe as Volkswagen AG, the continent's largest car maker, and will have a large presence in the U.S. and South America. Mr. Tavares will have the same role with an initial five-year term.

In a positive sign for negotiators, unions representing PSA workers have generally welcomed the deal. At a PSA European council meeting last week, 15 trade unions gave a favorable opinion on the merger, while one trade union signaled its opposition to the deal and another abstained, the car maker said.

The message to Fiat Chrysler and Peugeot employees called the memorandum of understanding "the formal document that signals the willingness of both companies to work together to create a 50/50 merger." The negotiation process is being overseen by Doug Ostermann, Fiat Chrysler's group treasurer and global head of business development, and Olivier Bourges, PSA's executive vice president for program and strategy groups. The two have established nine "workstream teams" to work on the negotiations, the document said.

Fiat Chrysler and PSA told employees that the two companies would remain competitors until the merger is completed.

--Nora Naughton contributed to this article.

Write to Eric Sylvers at eric.sylvers@wsj.com and Nick Kostov at Nick.Kostov@wsj.com

(END) Dow Jones Newswires

December 01, 2019 07:14 ET (12:14 GMT)

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