In 'merger of equals,' PSA is buying FCA, Stellantis prospectus says

The merger between Fiat Chrysler Automobiles and PSA Group to create Stellantis is being called a merger of equals by the two companies, but recently-filed documents confirm what many analysts have believed since the deal was announced last year: The combination is actually an acquisition of FCA by PSA, at least for accounting purposes.

The information is in the prospectus filed last week by FCA with the Mercato Telematico Azionario and Euronext Paris stock exchanges to list the Stellantis shares after the merger. The document has also been filed with the Securities and Exchange Commission in the U.S.

Click here to view or download a PDF of the prospectus.

According to the prospectus, the International Financial Reporting Standards, or IFRS, require the identification of the acquirer (and the company being acquired).

“Based on the assessment of the indicators under IFRS 3 accounting standard and consideration of all pertinent facts and circumstances,” the document says, “FCA and PSA's management determined that Peugeot S.A. is the acquirer for accounting purposes.”

Here’s the evidence the filing cites to support this view:

• The Stellantis board will have 11 directors, six of whom are to be nominated by PSA, PSA shareholders or PSA employees, or are current PSA executives.
• The combined group's first CEO, who is vested with the full authority to individually represent Stellantis, is Carlos Tavares, the current president of the PSA managing board (and CEO of PSA Group).
• PSA shareholders will pay a pre-merger premium.

According to the first two points above, the PSA side will have the upper hand after the merger. This is true even though Exor, the Agnelli family company that is now the largest shareholder of FCA, will hold the largest stake in Stellantis with 14.4 percent. The Peugeot family will have the second largest stake with 7.2 percent, followed by the French state with 6.2 percent and the Chinese group Dongfeng with 5.6 percent; all of the latter three are current shareholders of PSA.

PSA shareholders’ 6-to-5 advantage on the board won’t change soon, as members will serve an initial term of office of at least four years; Tavares will be appointed for a five-year term as Stellantis CEO.

The filing does call the deal a “merger of equals” meaning “a transaction in which the shareholders of each of PSA and FCA would own an equal stake in the combined group.” The same phrase has also been used by both groups in all the public communication related to the merger.

But “merger of equals” is not a legal definition. And equal stakes, as shown above, do not always mean equal powers. Considering also the fact that PSA is paying a premium, both companies agreed that PSA is the acquirer.

From a legal standpoint, PSA Group will be absorbed by FCA N.V., the automaker’s Dutch holding company,  which will be renamed Stellantis N.V. on the day after the closing. PSA shareholders will receive 1.742 FCA common shares for each PSA ordinary share they own.

This action is being taken because from the start the holding company was meant to be headquartered in the Netherlands.

PSA said in a statement that it was not building the merger with FCA "only on technicalities." 

"We have decided together on the most efficient financial and legal foundations to build Stellantis in the long term," PSA said.

A spokesman for FCA said, "As we have always made clear, Stellantis will be the result of a 50:50 combination of FCA and Groupe PSA."

The merger is expected to close by the end of the first quarter of 2021. Shareholders are set to vote on Jan. 4.