Peugeot, Fiat Keep the Show on the Road By

Peugeot, Fiat Keep the Show on the Road By

By Geoffrey Smith — There’s a big sigh of relief going around northern Italy on Tuesday as shareholders in Fiat Chrysler (NYSE:) celebrate success in keeping the auto group’s proposed merger with France’s Peugeot (OTC:) on track.

Fiat Chrysler (MI:) shares rose 6.7% by mid-morning in Milan to their highest since March on the back of news, released after the close on Monday, that shareholders will still get a special dividend ahead of the merger.

The dividend won’t be as big as originally planned, but the fact that there is still any dividend at all is a major boost, given the mess that the pandemic had made of the original arithmetic underlying the deal.

The two companies said in a statement late on Monday that the dividend to FCA shareholders would be cut to 2.9 billion euros ($3.4 billion) from the 5.5 billion euros initially foreseen. That’s because the pandemic, which has decimated car and van sales across the world, has sharply raised the need for liquidity at the two companies: FCA lost over 2.7 billion euros in the first half the year, while  operating cash flow was negative to the turn of over 6 billion euros in the second quarter.

Peugeot – almost alone of all the big automakers – stayed profitable even in Q2, which most people expect to have been the low point of the cycle. Even so, net income of 595 million euros in the first half was less than one-third of the previous year’s level.

So Stellantis – the atrociously-named holding company for the new group – will start life with 2.6 billion euros more cash than foreseen. If sales recover enough, then Stellantis will consider paying out another 1 billion euros equally to all shareholders. A big ‘if’, one might think.

The pandemic hasn’t changed the strategic logic for the merger. If anything, the contrary is true – it’s one of the many long-term trends accelerated by Covid-19. So it was a further boost to see that there’s no pushing back of the expected date of closure, which is still in the first quarter of next year, pending antitrust approval. The companies expect cost efficiencies of over 5 billion euros a year from the deal, a figure that is lent credibility by the excellent track records both of Peugeot’s Carlos Tavares and FCA’s Michael Manley.

FCA’s shareholders get one more sweetener under the new arrangements: Peugeot, which had expected to distribute its 46% stake in components company Faurecia (PA:) to its shareholders ahead of closure, will now distribute half of that to FCA shareholders.

Given that many FCA shareholders won’t want that exposure, Faurecia shares reacted the most negatively out of the four shares involved on Tuesday, falling 6.7%. FCA’s were the biggest gainer, while the Agnelli family’s holding company Exor (OTC:) rose 3.8%. Peugeot  (PA:) stock fell 1.1% in Paris.

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