Fiat Chrysler, Peugeot Merger Valued At Whopping $50 Billion; FCA Stock Soars

Merger talks between automakers Fiat Chrysler and Peugeot owner PSA have advanced and the deal may create a $50 billion auto giant, according to media reports that quoted insider sources.

The reports said although the two sides started talks earlier this year, Fiat Chrysler had paused to explore a $35 billion merger with Renault. But parleys with French automaker Renault failed.

PSA board to meet

According to the latest news, the PSA board would meet on Wednesday to take a call on the potential merger.

One possibility for the deal, per the WSJ report, it will be an “all-share merger of equals” and Peugeot CEO Carlos Tavares may lead the combined company.

Evercore analyst Arndt Ellinghorst said, "the merger should ignite more rational industry behavior around the allocation of capital and this particular merger makes materially more sense than a potential FCA-Renault merger.”

PSA brands include the Peugeot, Opel, DS, Citroën, and Vauxhall. Fiat Chrysler has an ongoing commercial vehicle partnership with Peugeot.

There had been considerable media spotlight on FCA merger pitches just like the Sprint T-Mobile merger initiatives.

Talks with PSA revived after Fiat Chrysler CEO Mike Manley sounded out potential new partners sensing a no-deal with Renault.

Fiat Chrysler Chairman John Elkann had to call off talks with Renault after the French government directed Renault to settle its issues with Japanese partner Nissan Motor before making new deals.

Multiple advantages

Fiat Chrysler is known for its high demand brand Jeep sport utility vehicle and hot selling Rams, the pickup and commercial vans in the North American markets.

Both products could boost Peugeots stable as the latter is not selling vehicles in the American market.

There is a big cost advantage if the deal gets through. At a time, the auto industries are reeling under low demand and slow down, the merger deal could lead to economies of scale and resource sharing.

They can share engines and vehicle architectures to reduce capital spending and unblock cash to invest in new electric vehicles and emission reduction technologies to operate in Europe, China, and other global markets.

Fiat Chrysler is facing a $79 million fine for falling short of U.S. fuel efficiency standards.

In the stock market, Fiat Chrysler shares jumped more than 7.5 percent in U.S. trading.

Fiat Chrysler started looking for a merger partner when late Sergio Marchionne was its chief executive. FCA was created under Marchionne’s leadership after acquiring Chrysler out of a U.S. government-backed bankruptcy in 2009.

In 2015, Marchionne advocated consolidation in the auto industry and made an unsuccessful bid to rope in General Motors for a deal. The FCA, PSA and the French government did not comment on the merger news.