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Fiat Chrysler and PSA Group Agree to $50B Merger

The combination will create the world’s fourth-largest carmaker.

Fiat Chrysler Automobiles and Peugeot maker PSA Group have reached a binding combination agreement that would create the world’s fourth-largest automaker.

PSA chief executive officer Carlos Tavares and Fiat Chrysler CEO Mike Manley after signing the combination agreement.

The merger, under which each company would own a 50% stake, is expected to take 12 to 15 months to complete, they said. A preliminary deal was announced six weeks ago.

It is the largest automaker deal since Daimler acquired Chrysler in 1998. The new company, which does not yet have a name, would have a market value of about $50 billion.

“The challenges of our industry are really, really significant,” PSA chief executive officer Carlos Tavares said in a call with reporters Wednesday. “The green deal, autonomous vehicles, connectivity, and all those topics need significant resources, strengths, skills, and expertise.”

Tavares will be CEO of the merged group for a term of five years and will also be a member of the board. Fiat chairman John Elkann will be chairman of the new group.

The companies have said they will cut costs by $4.1 billion per year without closing factories.

“The merged group will have to make massive savings and probably also close plants, even if the CEOs’ choice of words is different,” NordLB analyst Frank Schwope said. Schwope said both companies were “currently lagging far behind the competition in terms of technology and product range.”

Fiat Chrysler said it was meeting with labor unions on Friday to discuss the deal.

Under the deal, Dongfeng Motor Corp would sell a portion of its holdings back to PSA and own a 4.5% stake in the new company, in a move that could reduce pressure from regulators. Dongfeng owns a 12.2% stake in PSA.

FCA builds cars in North America and a planned expansion in Detroit was expected to create nearly 5,000 jobs.

United Auto Workers Vice President Cindy Estrada said the union believed North American production was highly productive and there was minimal overlap. “We look forward to hearing more details in the future and working together to continue to make FCA a success and bring about job security for our members,” she said.

Source : CFO

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