Joining forces: Fiat Chrysler, Peugeot maker agree to $50bn union

Fiat Chrysler (FCA) and Peugeot maker PSA said on Wednesday they had agreed on a binding merger in a $50bn deal that will pave the way to the creation of the world’s fourth-largest carmaker.

The two mid-sized auto firms, which are yet to decide on a name for their new company, announced plans six weeks ago for a tie-up that will reshape the global industry, as car manufacturers grapple with a global downturn in demand.

Carmakers are also facing steep costs to develop cleaner models as more stringent emission targets set in.

The PSA-FCA merger – which is aiming for annual cost savings of 3.7 billion euros ($4bn) by combining technologies and through shared purchasing agreements – is expected to close in the next 12 to 15 months, the auto firms said in a statement.

Before the 50-50 share merger is completed, one of PSA’s shareholders, China’s Dongfeng Motor Group, will trim its 12.2 percent stake in the French carmaker by selling 30.7 million shares to PSA.

That stake was worth 679 million euros ($748.4m) at the most recent closing price, and Dongfeng will have 4.5 percent of the merged group.

PSA and FCA confirmed the new company will have an 11-strong board, with five members nominated by PSA, another five by FCA. These will include labour representatives from both companies.

PSA boss Carlos Tavares, who will become CEO of the merged entity for an initial five-year term, will have the additional seat on the board.

A shock lawsuit General Motors (GM) filed last month against FCA in the United States over alleged union bribing did not affect the merger terms, FCA CEO Mike Manley told reporters, adding the claim was “meritless”.

Manley said he hoped FCA would “now dispose of that quickly” and if not, the company would defend itself vigorously.