EU opens investigation into Fiat Chrysler-PSA merger over commercial van competition
A four-month antitrust investigation launched by the executive brand of the European Union on Wednesday into the pending merger between Fiat Chrysler Automobiles NV and French rival Groupe PSA should not affect the companies' goal to close their transaction by the end of March 2021, the automakers said.
The probe is a setback for the $50 billion Dutch-domiciled tie-up expected to create the fourth-largest automaker in the world. The European Commission expressed concerns over the unnamed proposed combination's high share of the light commercial vehicles, particularly small vans, in 15 countries on the continent.
"Commercial vans ... are a growing market and increasingly important in a digital economy where private consumers rely more than ever on delivery services," Margrethe Vestager, the commission's executive vice president, said in a statement. "We will carefully assess whether the proposed transaction would negatively affect competition in these markets and ensure that a healthy competitive landscape remains for all the individuals and businesses relying on commercial vans for their activities."
The second phase of the merger review typically involves more extensive information gathering on market competition and the companies' projected efficiencies. It may include companies' internal documents, economic data, more detailed questionnaires and site visits. Following the review, the commission may clear the merger, approve it subject to changes or prohibit it.
"Both companies will continue to cooperate with the EC to answer its questions in the same constructive spirit that has defined our proposed merger from the start," FCA and PSA said in a joint statement. "As we continue to make progress through our cross-company project teams, we will be detailing to the EC — and other regulators — the substantial benefits of the proposed merger to our customers, the European industry and each company."
The companies added that preparations for the merger are advancing as planned, including with antitrust approvals from several jurisdictions, including the United States, China, Japan and Russia.
Europe would represent close to half of a combined company's revenues. The two automakers already produce vans for their Fiat, Peugeot and Citroën brands in collaboration through a 50-50 joint venture called Sevel S.p.A. based in Atessa, Italy. It is Europe's largest assembly plant for vans and manufactured 1,200 vehicles per day prior to the shutdown resulting from the novel coronavirus pandemic.
The companies produced a combined total of 755,000 light commercial vehicles last year, giving them a 34% market share, according to the European Automobile Manufacturers Association. That would place the merged company as the market leader with Renault SA and Ford Motor Co. trailing with about a 16% market share each.
The investigation is unlikely to jeopardize the deal, said Ferdinand Dudenhöffer, a professor of automotive economics for the Center for Automotive Research at the University of Duisburg-Essen in Germany. But it may require a brand to sell off parts of its business — a move that could be controversial after the companies said the merger would not include any plant closures.
"They may decide," Dudenhöffer said, "Fiat has to sell it to Volkswagen or to another company or to buy equity in it because otherwise the combination will be the dominant one of the market, and the E.U. wants to ensure competition."
PSA already had agreed to allocate its 46% stake in auto supplier Faurecia SE as a part of the merger agreement. Fiat Chrysler would distribute a $6.1 billion dividend to shareholders and spin off its Comau robotics business after the transaction completed.
Fiat Chrysler shares in New York were down less than 1% during mid-day trading, slightly worse than the declining Dow Industrial Jones Average. PSA holding company Peugeot SA's stock in Paris also had fallen less than 1%.
The 50-50 merger is expected to provide the scale the automakers need to compete in an industry trending toward electric and self-driving vehicles that require massive amounts of capital investment. They predict annual savings of $4.1 billion by combining without closing plants.
A similar merger proposed between Fiat Chrysler and Renault last year failed because of objections from the French government, which held a 15% stake in Renault. Although the French government also owns about 12% of PSA and has board representation, Bruno Le Maire, France's finance minister, supported the deal with PSA.
And although the Trump administration last year indicated it would investigate the merger over Chinese automaker Dongfeng Motor Corp.'s 12% stake in PSA, a binding agreement between the carmakers in December appears to address that issue with PSA saying it would buy back shares to reduce Dongfeng's stake to 4.5%.
PSA CEO Carlos Tavares would take the helm of the new company with FCA chairman John Elkann, scion of Fiat's founding Agnelli family, continuing in his same role. PSA would have six board members to FCA's five. Fiat Chrysler CEO Mike Manley would serve in a senior executive role.
The deal would put the Italian American automaker's Ram, Jeep, Dodge, Chrysler, Fiat and Maserati brands and the French company's Peugeot, Citroën, Opel, Vauxhall and DS under one roof.
The European Commission has until Oct. 22 to make a decision.