Autos

Fiat Chrysler and Peugeot confirm deal to create the world's fourth-largest carmaker

Key Points
  • The new company's shares will be listed in New York, Paris and Milan.
  • FCA's John Elkann would become the chairman and Peugeot's Carlos Tavares would become the CEO.
  • The proposed tie-up would reportedly create an industry behemoth with 8.7 million vehicle sales, $190 billion in turnover and a combined 400,000 employees.
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Automakers Fiat Chrysler and Peugeot annouce intention to merge

Peugeot (PSA) and Fiat Chrysler (FCA) confirmed their intention to merge on Thursday, in what would be a 50-50 share swap and create the world's fourth-largest carmaker.

The new company's shares will be listed in New York, Paris and Milan with FCA's John Elkann becoming the chairman and Peugeot's Carlos Tavares becoming the CEO. The proposed tie-up would reportedly create an industry behemoth with 8.7 million vehicle sales, $190 billion in turnover and a combined 400,000 employees.

By vehicle sales, Volkswagen Group, Renault-Nissan, and Toyota occupied the top three spots of the world's leading automakers in 2018, according to Statista.

"Discussions have opened a path to the creation of a new group with global scale and resources owned 50% by Groupe PSA shareholders and 50% by FCA shareholders," they said in a joint statement on Thursday morning.

"In a rapidly changing environment, with new challenges in connected, electrified, shared and autonomous mobility, the combined entity would leverage its strong global R&D (research and development) footprint and ecosystem to foster innovation and meet these challenges with speed and capital efficiency."

Early reports of the merger talks — which would create a new group worth roughly $50 billion — have moved share prices for both automakers this week. Italian-American carmaker Fiat Chrysler saw its stock surge as much as 8% on Tuesday and added another 5% on Wednesday. Peugeot shares actually fell 8.8% as markets opened in Europe on Thursday.

France welcomes deal

Executives at the firms have briefed regulators in the U.S. and France, the Wall Street Journal reported, citing unnamed sources. The confirmation of the deal comes about five months after Fiat Chrysler ended merger discussions with PSA's French rival, Renault. However, this new merger is unlikely to face the same interference from the French government with some positive comments already emanating from Paris.

French Finance Minister Bruno Le Maire said in a statement that he welcomed the deal but said France would be particularly vigilant on the preservation of its industrial footprint in the country and the location of its head offices.

"This merger is a response to the automotive sector's need to consolidate in order to face the challenges of mobility in the future," he said in a statement Thursday, according to a CNBC translation.

"France should be proud of its car industry which has demonstrated its capacity for research and technological innovation, particularly in the fields of electric and hybrid (vehicles)."

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Finalize discussions

The new boards are now expected to finalize discussions over the coming weeks and draw up and a memorandum of understanding.

Prior the competition of the deal, FCA said it would distribute to its shareholders a special dividend of 5.5 billion euros, as well as its shareholding in subsidiary Comau. Peugeot said it would distribute to its shareholders its 46% stake in automotive supplier Faurecia.

"The proposal would be submitted to the information and consultation process of the relevant employee bodies, and would be subject to customary closing conditions, including final board approvals of the binding Memorandum of Understanding and agreement on definitive documentation," the joint statement concluded.

—CNBC's Michael Wayland and Phil LeBeau contributed to this article.