PARIS — PSA Group said it remains committed to a merger with Fiat Chrysler Automobiles after French media reports said the tie-up could be threatened by economic fallout from the coronavirus outbreak, which has sharply reduced the market capitalization of both companies.
The coronavirus fallout has called into question the financial terms of the merger, sources who are working on the transaction told the Paris-based Agence France-Presse news agency. The terms of the deal, which has been described as a merger of equals by both companies, might need to be reviewed, the French financial daily Les Echos said.
PSA and FCA signed a memorandum of understanding in December and said the merger could close in 12 to 18 months. Teams in France and Italy and working on operational details and submitting documents to relevant antitrust authorities, but they are allowed only limited contact until the closing.
The terms of the deal agreed to in December call for FCA shareholders to receive a special dividend of 5.5 billion euros ($6.1 billion). PSA shareholders would receive the automaker's 46 percent share of Faurecia, a French supplier in which PSA holds a controlling interest and which would be spun off as part of the deal. The crisis has reduced the value of Faurecia.
The question of proposed dividends is a sensitive one, as automakers seek to preserve cash to weather the crisis. In addition, if the global economy plunges into recession, automakers might need government-backed loans to cover expenses.
"If PSA or FCA appeal to the state, how could they justify asking taxpayers for billions and distributing billions to their shareholders at the same time?" Gregori Volokhine of Meeschaert Financial Services told Agence France-Presse.
FCA said it would not comment on the reports.
PSA said in a statement that in the context of the coronavirus crisis, it would be "inappropriate to be speculating about modifications of the deal conditions. We are completely focused on protecting our employees and our company."
PSA added: "We are taking the necessary decisions to ensure group sustainability. More than ever, this merger makes sense. Our teams continue to work with the same commitment."