Groupe PSA and FCA agree to merge

Fiat Chrysler Automobiles (FCA) and Peugeot S.A. (Groupe PSA) have signed a binding combination agreement providing for a 50:50 merger of their businesses to create the fourth largest global automotive original equipment manufacturer by volume and third largest by revenue.

The proposed combination intends to be an industry leader with the management, capabilities, resources and scale to successfully capitalise on the opportunities presented by the new era in sustainable mobility.

The gains in efficiency derived from larger volumes, as well as the benefits of uniting the two companies' strengths and core competencies, will ensure the combined business can offer all its customers best-in-class products, technologies and services and respond with increased agility to the shifts taking place in this highly demanding sector.

The combined company will have annual unit sales of 8.7 million vehicles, with revenues of nearly $256 billion, and a recurring operating profit of over $16 billion, translating into an operating profit margin of 6.6%, all on a simple aggregated basis of 2018 results. The strong combined balance sheet provides significant financial flexibility and ample headroom both to execute strategic plans and to invest in new technologies.

The efficiencies that will be gained from optimising investments in vehicle platforms, engine families and new technologies, while leveraging increased scale, will enable the business to enhance its purchasing performance and create additional value for stakeholders.

More than two-thirds of run rate volumes will be concentrated on two platforms, with approximately three million cars per year on each of the platforms.

These technology, product and platform-related savings are expected to account for approximately 40% of the total $5.5 billion in annual run-rate synergies, while purchasing - benefiting principally from scale and best price alignment - will represent a further estimated 40% of the synergies. Other areas, including marketing, information technology, and logistics, will account for the remaining 20%.

These synergy estimates are not based on any plant closures resulting from the transaction. It is projected that the estimated synergies will be net cash flow positive from year one and that approximately 80% of the synergies will be achieved by year four. The total one-time cost of achieving the synergies is estimated at $4.2 billion.