The PARIS-PSA Group announced that it is continuing to advocate a merger with Fiat Chrysler Automobiles after French media reports said the merger could be threatened by the economic consequences of the corona virus outbreak, which has severely reduced the market capitalization of both companies.
The coronavirus fallout has questioned the merger’s financial terms, sources working on the transaction said the Paris-based company Agence France-Presse News agency. The terms of the deal, described by both companies as a merger of peers, may need to be reviewed, the French financial newspaper said Les Echos said.
PSA and FCA signed a Memorandum of Understanding in December, saying the merger could be completed in 12 to 18 months. Teams in France and Italy work on operational details and submit documents to the relevant antitrust authorities. Until the end, however, they may only make limited contact.
The contractual terms agreed in December stipulate that the FCA shareholders will receive a special dividend of EUR 5.5 billion (USD 6.1 billion). PSA shareholders would receive the automaker’s 46 percent stake in Faurecia, a French supplier in which PSA holds a majority stake and which would be spun off as part of the deal. The crisis has reduced Faurecia’s value.
The question of the proposed dividends is delicate as automakers try to save money to survive the crisis. If the global economy goes into recession, automakers may need government-backed loans to cover expenses.
“If PSA or FCA appeal to the state, how could they justify asking taxpayers for billions while distributing billions to their shareholders?” Gregori Volokhine from Meeschaert Financial Services told Agence France-Presse.
FCA said it would not comment on the reports.
PSA said in a statement that in the context of the coronavirus crisis, “it is inappropriate to speculate on changes in terms and conditions. We are fully focused on protecting our employees and our company.”
PSA added: “We are making the necessary decisions to ensure the sustainability of the group. This merger makes more sense than ever. Our teams continue to work with the same commitment.”