By Eric Sylvers
MILAN -- John Elkann, Chairman of Fiat Chrysler Automobiles NV,
learned a lesson from the Italian-American car maker's longtime
Chief Executive Sergio Marchionne, who died last year: Merge and
grow, or fade into irrelevance.
Five months after a failed merger attempt with Renault SA, Mr.
Elkann, the U.S.-born heir of the Agnelli dynasty that founded
Fiat, is once more front and center as he personally negotiates
with Peugeot CEO Carlos Tavares about a $46 billion merger that
would create the world's fourth-largest car maker.
On Wednesday, the two companies confirmed they are in talks that
could lead to a merger, after The Wall Street Journal reported the
discussions Tuesday. They didn't provide further details. One of
the possibilities being discussed is an all-stock merger of equals
in which Mr. Elkann would become chairman of the new group and Mr.
Tavares would be CEO, the Journal reported.
The two companies could announce a memorandum of understanding
as soon as Wednesday, which would indicate they are in exclusive
negotiations, according to people familiar with the matter. They
plan to announce the deal on Thursday morning, provided there are
no hiccups, according to a person close to the negotiations.
"We're moving forward. The mind-set is positive," the person
said.
The French state, which owns 12.2% of PSA Group, is following
the discussions with "close attention and an open mind," a finance
ministry official said Wednesday.
"These discussions consecrate the turnaround of PSA, which was
supported by the state," the official said.
The government would be vigilant in maintaining the industrial
footprint and governance of the combined group, the official said,
as well as the company's participation in a European project to
develop the next generation of car batteries.
Fiat Chrysler and France's Peugeot already discussed a potential
merger earlier this year, and many of the specifics were hashed out
at the time, according to people familiar with the discussions.
Those talks were shelved in May when Fiat Chrysler sought a deal
with Renault instead. But the deal was shelved at the 11th hour
after Mr. Elkann failed to get the full backing of the French
government and Renault's alliance partner Nissan Motor Co.
Peugeot and Mr. Elkann's family holding company Exor NV, which
owns 29% of Fiat Chrysler, have scheduled board meetings for later
Wednesday, according to people familiar with the plans. The
companies haven't confirmed the meetings. Fiat Chrysler will also
hold a board meeting later Wednesday if the Peugeot board gives a
green light for the negotiations to proceed, according to a person
familiar with the situation.
Mr. Elkann hired Mr. Marchionne as Fiat's CEO in 2004 when the
company was losing close to EUR1 million ($1.1 million) a day and
shedding market share as its small cars fell out of favor. Mr.
Marchionne nursed Fiat back to health, in part by engineering a
takeover of bankrupt Chrysler in 2009. He focused on expanding the
appeal of Jeep sport-utility vehicles and Ram trucks, which now
account for the majority of Fiat Chrysler's profit, helping to
offset the struggling Fiat brand.
Until Mr. Marchionne's death, Mr. Elkann was largely in the
shadow of his larger-than-life CEO. Mr. Marchionne was the toast of
the car industry thanks to his frankness on a host of topics,
including the need for industry consolidation. In 2015, Mr.
Marchionne pursued a deal with General Motors Co. After several
advances were rebuffed, he went public with a presentation that set
out his detailed arguments for why the industry needed to
consolidate, including the high costs of developing technology for
electric vehicles and autonomous driving.
Mr. Elkann preferred to concentrate on diversifying Exor's
holdings away from the car sector, in a plan that was long in the
making with input from Mr. Marchionne, who was an Exor board
member. Mr. Elkann's biggest move came in 2015 when he bought
reinsurance company PartnerRe. He was often directly involved in
the contentious negotiations with PartnerRe that culminated in a
hostile takeover of the company by Exor.
The collapse of the Renault deal in June could prove costly for
Mr. Elkann and his family. Since those failed talks, Peugeot's
stock has risen sharply, and the French company has surpassed Fiat
Chrysler in market value.
To ensure an eventual deal between Peugeot and Fiat Chrysler is
structured as a merger of equals, a cash component might be
included as part of the share exchange to compensate for the
difference in the two companies' market values, according to a
person familiar with the matter.
Before news of the latest talks leaked, Fiat Chrysler had a
market capitalization of about EUR18.5 billion and Peugeot EUR22.5
billion. Early Wednesday, Fiat Chrysler's shares were up 9.7% and
Peugeot's 5.7%. Renault stock was down 3.4%.
Potentially complicating merger negotiations, Fiat Chrysler is
in the middle of contract talks with the North American labor union
United Automobile Workers. However, Peugeot has no presence in the
U.S. so the merger plan is unlikely to threaten jobs there.
Mr. Elkann had long favored the Renault deal and continued to
hold out hope for that merger to be revived. But some analysts
argue that Peugeot is actually the better match. The two companies
are complementary in most markets and already have several joint
ventures, including one to produce commercial vehicles. While Fiat
Chrysler has a large business in Brazil, the French company has
concentrated its South American strategy on Argentina.
Both car makers have significant market shares in Europe
providing the opportunity for cost cutting. Together they would
have a market share of about 23% in the region, just behind
Volkswagen AG.
--Nick Kostov and Ben Dummett contributed to this article
Write to Eric Sylvers at eric.sylvers@wsj.com
(END) Dow Jones Newswires
October 30, 2019 07:35 ET (11:35 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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