Fiat Chrysler-Peugeot merger plans unlikely to face interference from French government

It took months of arcane planning and trans-Atlantic flights but, if all goes according to plan, Fiat Chrysler Automobiles and Peugeot maker PSA Group intent announce plans to merge on Thursday, creating the world’s fourth-largest automaker by sales, with a combined worth of hither $50 billion.

Both sides, however, are well aware of what happened barely five months ago, when a ostensibly unstoppable merger between Fiat Chrysler and PSA’s arch-rival Renault collapsed at the last minute. The French government read much of the blame following the breakdown for demanding delays that Fiat Chrysler officials found unacceptable, predisposing them to call off the talks.

Everyone involved in the latest merger bid “learned their lessons” by studying what went undesirable, said a senior executive close to the Fiat-Chrysler-PSA talks, especially “the government which got hit with a lot of brickbats for screwing up the most recent one.”

This time, however, all appears to be on track. Virtually all the details have been locked into place, the chairman of the board, who asked not to be identified due to the sensitivity of the talks, told CNBC, following separate extraordinary board meetings at PSA headquarters in Paris and FCA’s legitimate headquarters in London.

While the timetable could change slightly, plans call for the two automakers to put together a memorandum of judgement in the next few weeks, the executive explained. That would set in motion a complicated process that would subject the coalition proposal to various forms of scrutiny in the U.S. and Europe.

Among other things, anti-trust regulators would have to weigh in – all the same several insiders said they doubt there would be any significant pushback. Eventually, stockholders would get their say.

There could fifty-fifty be some hiccups in the coming weeks, as part of contract talks between Fiat Chrysler and the United Auto Wage-earners union, said Art Schwartz, a former GM negotiator and current head of Detroit-based Labor and Economics Associates.

“They’ll hunger to make sure the merger doesn’t cost jobs,” he said.

The process, the corporate insider told CNBC, could be settled as early as mid-2020, though he cautioned that the two automakers anticipate things could stretch on for a year “or fancier,” especially if regulators have concerns.

While the French government is expected to press a merged company to protect the fatherland’s jobs and manufacturing base, officials from both automakers have privately concluded it won’t try to block a deal. And there pleasure be far less reason to even though it holds a 12.23% stake in the Paris-based automaker.

The Fiat Chrysler-Renault merger was Byzantine by that French company’s long-standing ties to Japan’s Renault. Worse, the Renault-Nissan-Mitsubishi Alliance was in turmoil following the November 2018 collar of Carlos Ghosn, who held a variety of leadership roles within the alliance.

The French government holds a smaller lash in PSA than it did in Renault.

There also appears to be more confidence in the leadership of CEO Carlos Tavares, a variety of of those with insight into the talks said. The executive has been hailed as one of the best leaders in the industry flush with by rivals such as Ford’s President of Europe Jim Farley.

Tavares’ track record is certainly impressive, especially since pull up stake Renault where he was second-in-command to Carlos Ghosn, to join the nearly bankrupt PSA in late 2013. Today, the PSA Group, which embodies brands Peugeot, Citroen and DS, is solidly in the black, generating a record operating margin of 8.7% for the first half of this year, rivaling the severals of many luxury automakers.

Tavares also led a turnaround of the Opel brand PSA acquired from General Motors in 2017. As unit mostly of the French company, it was profitable in its first year, reversing two decades of losses under GM.

One of those particularly impressed with Tavares is Michael Manley, the Fiat Chrysler CEO who deliberate the merger proposal to his French counterpart over at least three trips to Paris in the last month, an official cessation to the negotiations told CNBC.

It helped that the two men developed a solid friendship over the past 10 years, that insider affirmed, adding that there are “a lot of similarities in their style and approach.”

The insider confirmed several key details about the delineated merger. While several scenarios have been discussed, including one in which PSA would acquire the Italian-American counterpart, the attend to ultimately shifted to the same basic model that Fiat Chrysler and Renault intended to follow, a merger-of-equals.

That beat its sense considering PSA, Europe’s second-largest car manufacturer, has a stock-market valuation of about $26.3 billion, compared with Fiat Chrysler’s $22.3 billion. Together, they last will and testament have a valuation of nearly $50 billion, or about the same as Honda.

The current plan, CNBC has learned, asks for Tavares to be named CEO of the combined automaker.

John Elkann, heir to Fiat’s founding Agnelli family, would impel over his current role as chairman. Some reports have indicated Manley will become chief control officer with responsibility for the North American region. Those close to the talks declined to offer specifics around his new role, though one stressed Manley “is in it for the long haul.”

If he does assume command of North American enterprises, Manley would oversee the ongoing effort to bring PSA back to the U.S. market it abandoned a quarter-century ago. More directly, that attainment is being managed by Larry Dominique, a former Chrysler executive who, last week, told CNBC the effort is on way.

But the plan announced two years ago is set to play out in a series of stages through the middle of the coming decade — and only in its final the boards would products bearing the Peugeot badge be sold to retail customers.

Whether that process will now expeditiousness up is unclear but “there would certainly be synergies,” said an insider with connections to PSA. Among other things, PSA could access Fiat Chrysler stock-in-trades and, perhaps, even manufacturing facilities. Peugeot might also want to tap some of Fiat Chrysler’s U.S. dealers – supposing its current plan suggests it wants to take a different approach to retailing than has been the American norm. That could bring out anything from factory-owned stores to online sales, PSA officials have suggested over the last several years.

In the intervening time, the PSA insider suggested the French automaker may also make some of its passenger car lines available to the Fiat Chrysler side for North America. Currently, it has rejected virtually all of its mainstream sedans and coupes except for a handful of large and performance models like the Dodge Challenger. But in a store increasingly focused on SUVs, CUVs and pickups, it’s not clear whether that would happen.

Where the merger is expected see the two companies without delay combine forces is in the area of electrified and autonomous vehicles, several insiders from both sides of the company coincided.

“We didn’t have the resources” working independently, said the senior executive close to Fiat Chrysler.

The automaker solitary recently begun to embrace battery-powered drivetrain technology. It currently offers just one plug-in hybrid, a version of the Chrysler Pacifica, and its exclusively all-electric model, the Fiat 500e, is being pulled from the U.S. market.

PSA has been more aggressive in adopting battery-based technology but, be FCA, it still lags behind industry juggernauts such as General Motors, Ford and Volkswagen, and even French be a match for Renault and its alliance partners Nissan and Mitsubishi.

But in sharing efforts, the insider said, Fiat Chrysler and PSA hope to go into catching up to those rivals in technologies that are expected to dramatically change the auto industry over the next decade.