Peugeot and FCA Likely to Renegotiate Merger Terms, Say Analysts
April 02 2020 - 12:49PM
Dow Jones News
By Jessica Sier
Peugeot SA and Fiat Chrysler Automobiles NV are likely to review
the terms of their merger, say analysts, as the global economy
shifts towards recession and cash balances come into sharp
focus.
The terms of the deal--announced last December--require each
company to pay 1.1 billion euros ($1.32 billion) to shareholders as
an ordinary dividend, and FCA would also pay a EUR5.5 billion
special dividend payment to FCA shareholders.
But with the suspension of global supply chains and the
shuttering of plants across Europe and North America, analysts say
cash payouts are both financially and politically challenging.
"We'd question whether it's reasonable to pay out so much cash
from these companies when the industry is under this kind of
distress," says Timm Schulze-Melander, Industrials Specialist at
Redburn Industrials.
"Given governments are stepping in to assist other automakers,
it's likely the terms of this merger will need to be updated as the
economic slowdown weakens balance sheets."
Analysts have criticized the transfer of value from Peugeot to
FCA shareholders, the majority of which are controlled by the
Agnelli family.
"It was a very expensive deal for Peugeot," says Tom Narayan,
auto analyst at RBC Capital Markets.
"It's likely those dividend payments were a nice carrot for the
family to agree to the deal, so if those are withdrawn there could
be an issue."
On Thursday, Reuters reported China's Dongfeng Motor was
reviewing its deal with Peugeot to lower its 12.2% stake in the
French car maker, a move designed to free up around EUR680 million
to assist in the merge.
Shares in Peugeot were trading 4.6% higher to EUR11.86 at
GMT1700 on Thursday.
"This discussion of a deal breaking could possibly explain why
PSA shares are up so much today," says Mr. Narayan.
Peugeot has postponed its board meeting until June 25.
Write to Jessica Sier at jessica.sier@wsj.com
(END) Dow Jones Newswires
April 02, 2020 12:34 ET (16:34 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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