Breakingviews - Value fight would drive Peugeot into cul-de-sac

Carlos Tavares, Chief Executive Officer and Chairman of the Managing Board of PSA Group, speaks at the Tomorrow In Motion event on the eve of press day at the Paris Auto Show, in Paris, France, October 1, 2018.

MILAN (Reuters Breakingviews) - Investors in Peugeot have suffered an unexpected reverse. Shares in the French carmaker have dipped since Chief Executive Carlos Tavares unveiled plans for a merger with Fiat Chrysler Automobiles. Demanding better terms seems futile, however. Peugeot’s largest shareholders are expected to back the plan, and a vote against the project would undermine the French group’s top asset: Tavares himself.

Though the two companies describe the proposed deal as a merger of equals, it’s really a takeover of Fiat by its French counterpart. The Italian-American company will pay out 5.5 billion euros and its Comau robotics unit to shareholders before consummating the union, while Peugeot will distribute a stake in parts maker Faurecia, worth 2.7 billion euros before the deal was announced. As both sides will then have an equal stake in the combined company, Peugeot investors will effectively transfer about 3.7 billion euros to the Jeep maker, according to Breakingviews calculations.

That unequal split is reflected in the share prices of the two companies since they announced their union at the end of last month. Peugeot shares are down 3%, while Fiat is up 25%. Their joint market value has risen some 4 billion euros. That’s modest considering the 3.7 billion euros a year in synergies that the two companies say a merger will unlock.

The muted reaction may signal that investors are nervous about the chances of completing the deal, following the recently failed marriage between Renault and Fiat. Competition authorities may also get involved. And shareholders appear sceptical about the scope for delivering the promised synergies, given that the two companies have pledged not to close any factories.

Peugeot investors could try to argue for shifting the financial terms in the French group’s favour. But they have little hope of outvoting the Peugeot family, the French state and China’s Dongfeng Motor. The trio control almost 37% of the company and some 50% of Peugeot’s voting rights.

More importantly, criticism of the deal would effectively be a vote of no confidence in Tavares, the architect of the company’s turnaround. A fight over valuation would only risk driving Peugeot into a cul-de-sac.


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