Fiat Chrysler Automobiles and PSA Group are merging to become 4th-largest automaker

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On Thursday it became official: Fiat Chrysler Automobiles and PSA Group are merging to become the world's fourth-largest automaker. Alfa Romeo, Citroën, Chrysler, Dodge, DS, Fiat, Maserati, Opel, Peugeot, Ram, and Vauxhall will all now share a single corporate parent and merge operations. In a press release, Fiat Chrysler and PSA said that the 50:50 merger should save more than $4 billion (€3.7 billion) a year from "run-rate synergies without any plant closures."

Merging with another large automaker has been FCA's plan for a while. Before his untimely death, Sergio Marchionne had conducted talks with many potential suitors, and earlier this year FCA was in active discussions with Renault. But those talks ultimately went nowhere, and now FCA will join up with France's other big automaker, PSA Group.

On the face of it, the merger makes a lot of sense. FCA has strong sales in the Americas and a decent portfolio of luxury brands and SUVs and trucks. PSA is strong in Europe, and its brands are better mainstream cars built using more modern architectures. PSA Group is also well ahead of FCA in terms of electrification.

The new company, which has yet to be named, will be registered in the Netherlands, although it will "continue to maintain significant presences in the current operating head-office locations in France, Italy, and the US." PSA Group boss Carlos Tavares will be CEO of the 11-person board, with FCA's John Elkann as chair.

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However, the deal could still face close regulatory scrutiny, while governments in Rome, Paris and unions are all likely to be wary about potential job losses from a combined workforce of around 400,000.

Jefferies analyst Philippe Houchois said that, adjusting for the differences in market value and planned dividend payments, achieving the 50-50 split would effectively see PSA paying a 32% premium to take control of FCA.

FCA shares jumped as much as 11% to a one-year high of 14.248 euros. PSA shares fell as much as 14% to a two-week low of 22.33 euros.

“PSA shareholders are assuming more market risk than FCA’s,” Houchois said, adding a PSA-FCA deal was still the most logical and attractive combination in the industry.

The tie-up would create a group with 8.7 million in annual vehicle sales, putting it fourth globally behind Volkswagen, Toyota and the Renault-Nissan alliance.

The companies aim to make 3.7 billion euros ($4.1 billion) of savings without plant closures, and achieve around 80% within four years, at a one-off cost of 2.8 billion euros.

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