PSA-FCA merger terms should not be revised, Tavares says

PARIS -- PSA Group CEO Carlos Tavares pushed back against suggestions that the terms of its merger agreement with Fiat Chrysler Automobiles should be revised because of the impact of the coronavirus crisis.

The "time has not come to discuss this issue," Tavares said when asked if terms could be revised to reflect the downturn in the global auto industry.

The deal has become even more vital because of the crisis and to speed up cost savings, Tavares told PSA's annual shareholder meeting on Thursday. "The merger with FCA is the best among the solutions to cope with the crisis and its uncertainties," he said.

A French investor in PSA, Phitrust, said this week that the merger terms should be modified to reflect the impact of the COVID-19 pandemic and FCA’s declining prospects.

FCA has received guarantees for a 6.3 billion euro loan backed by the Italian government, while PSA's strong balance sheet has helped it to weather the  economic slump caused by measures to contain the spread of the coronavirus.

As part of the agreement, FCA has agreed to pay its shareholders a special one-time dividend of 5.5 billion euros, an amount that would have equalized the market capitalizations of the two automakers. But since the crisis, both companies have seen their share price fall sharply.

"We have to act as professionals. We have signed a binding agreement," Tavares said on Thursday in response to a question from Phitrust on whether the terms should be changed.

"The agreement is based on a balance on which we have worked hard and for a long time. It's a fine, relevant balance vis-a-vis the two companies, the shareholder base and the countries. Today is not the time to look at things you raise in your question," Tavares said.

FCA Chairman John Elkann has said the terms of the deal "are set in stone as binding contracts in their nature are." Elkann was speaking on May 20 in a conference call after the annual shareholder meeting of Exor, the Agnelli family holding company which controls FCA.

On Thursday Tavares said the benefits of the deal must be appreciated over the long term. "When we take the synergy figures we have presented and we look at the 10 or 20 years to come, the value creation over that period is huge for the two shareholder bases," he said.

The $50 billion merger would create the world’s fourth-largest automaker by volume and third-largest by revenue.

PSA and FCA executives say the merger will initially create synergies of at least 3.7 billion euros ($4.2 billion).

The 3.7 billion euros figure, which Tavares described as a “floor,” would be reached by the fourth year, with 40 percent coming from product expenses such as platforms, 40 percent from purchasing savings and 20 percent from other functions such as information technology.

"Things are going extremely well between the two companies," he said, adding that 25 teams, representing 500 PSA managers, have been working on the merger. "This is reassuring because there have been so many who have been critical, who have pointed out the failures in similar mergers."

Tavares played down fresh EU antitrust scrutiny of the planned merger.

EU antitrust regulators last week began a four-month investigation into the deal, saying it may harm competition in small vans in 14 EU countries and the UK.

He said he was confident that it would be finalized by the first quarter of 2021 "at the latest."

PSA and FCA declined to offer concessions to allay EU concerns during its preliminary review of the deal, which has already received the green light in the United States, China, Japan and Russia.

Tavares said that “at least 10” of 20 antitrust dossiers submitted to various authorities had been given approval.

PSA and FCA have already revised one aspect of the merger. In May, they said that they would not pay a planned 1.1 billion euro ordinary dividend on 2019 results, citing the negative impact of the pandemic.

Reuters contributed to this report