Peugeot and FCA Likely to Renegotiate Merger Terms, Say Analysts

   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"It's likely those dividend payments were a nice carrot for the family to agree to the deal, so if those are withdrawn there could be an issue."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 [e-mail]

(END) Dow Jones Newswires

April 02, 2020 12:34 ET (16:34 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.