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Fiat (FCAU) Amends Terms of Merger With PSA, Slashes Dividend

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Fiat Chrysler Automobiles N.V. (FCAU - Free Report) and Peugeot SA (PUGOY - Free Report) recently announced a joint decision to restructure the terms of their original merger, which is set to close during the first quarter of 2021. This decision comes in as a measure to preserve more cash for the companies’ future merged business, Stellantis, which will help combat the crisis of the coronavirus pandemic.

As part of the revised terms, Fiat has lowered the previously-agreed 5.5-billion euro ($6.2 billion) special dividend to 2.9-billion euro ($3.4 billion) to be paid to shareholders of the company before the deal’s closure.

Last year, Fiat and France's PSA Group signed a 50-billion euro deal to create Stellantis — the world’s fourth largest OEM by volume and number three in terms of revenues. The tie-up between the two companies was a merger of equilibrium, i.e. each would own a 50% stake in the new joint entity.
 
However, as the coronavirus pandemic crippled the auto industry, it was widely anticipated that the companies would overhaul the original terms of agreement in order to enhance their liquidity. Hence, the firms amended the terms of the alliance, while maintaining the fundamental balance of the original agreement.
 
Slashing Fiat’s dividend payout altered the ratio of the merger, which has been balanced out by the PSA Group. Initially, PSA, which owns 46% majority stake in auto parts maker Faurecia, had intended to spin off its portion of the business to its own shareholders. Nevertheless, in light of the amendments, its stake in Faurecia, worth 2.7 billion euro approximately, will be split evenly between Fiat and PSA’s investors post the deal’s closure.

As a result of these amendments, Fiat and PSA’s respective shareholders will receive equal 23% shareholdings in Faurecia, while their equal ownership of Stellantis will remain unaltered, thus, preserving the original combination agreement.

These amendments ensure that Stellantis has all the required resources and makes its balance sheet even more robust with additional 2.6 billion euro cash in hand.
 
Moreover, the boards of both PSA and FCA will consider a prospective distribution of 500 million euro to shareholders of each company before closing or a distribution of 1 billion euro to be done after the merger conclusion to all Stellantis shareholders. The decision will be taken after monitoring the performance of both companies during the transition period.

The new entity, Stellantis, with its much greater combined scale and strongly diversified business, will be capable of stimulating the development of next-generation technologies and mobility solutions in electric and self-driving vehicles, boosting profitability. The annual estimated cost savings from the alliance are anticipated to be more than 5 billion euro, exceeding the initial target of more than 3.7 billion euro.

Zacks Rank and Other Stocks to Consider

Fiat currently carries a Zacks Rank #2 (Buy), while PSA flaunts a Zacks Rank of 1 (Strong Buy). Shares of Fiat and PSA have depreciated 18.8% and 18.9%, respectively, year to date.


 

Some other top-ranked stocks in the same industry are BMW AG (BAMXF - Free Report) and Suzuki Motor CP (SZKMY - Free Report) , each sporting a Zack Rank of 1 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

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