Fiat Chrysler Automobiles N.V. FCAU is seeking options to reduce a planned cash compensation to its shareholders, which is part of the company’s collaboration deal with France’s PSA Groupe, including the spin-off of assets.
Reducing or canceling the 5.5-billion euro ($6.2 billion) special dividend would allow the new group to hoard cash at a time when the coronavirus pandemic has crippled the auto industry and will hurt sales and production in the days ahead.
Options that Fiat is considering with PSA include spinning off the Sevel van business, which is a 50-50 joint venture between the two companies. Sevel, which manufactures vans at Atessa's central Italy factory, could be worth 2.5-3 billion euros, and require PSA to sell its 50% interest in Sevel to Fiat. Another way being considered involves spinning off Fiat's brands Alfa Romeo and Maserati. In addition, Fiat is considering scrapping a proposed spin-off of PSA's majority interest in component maker Faurecia to reduce the cash dividend number.
Fiat and PSA had signed this binding agreement for their merger in a 50-50 share swap in December 2019. The tie-up between Italian-American automaker Fiat-Chrysler and PSA will result in the creation of the fourth largest global automotive OEM by volume and the third largest by revenues, with combined revenues of nearly 170 billion euros.
At closing, PSA shareholders are anticipated to obtain 1.742 shares of the new entity for each share of PSA Groupe, while Fiat shareholders will get 1 share of the combined company for each share of Fiat from the merger. Reportedly, the merger is expected to close by the first quarter of 2021. Shares of the new entity will be listed in New York, Paris and Milan. The combined company will be headed by Fiat’s John Elkann as the chairman and PSA’s Carlos Taveres as the CEO.
Meanwhile, Fiat was recently guaranteed 6.3 billion euros ($6.9 billion) in loans from Italy’s biggest retail bank — IntesaSanpaolo — subject to the car maker securing a state guarantee, which will cover 80% of the amount borrowed. The loan reportedly includes conditions not to relocate or cut jobs as the firm merges with PSA.
Zacks Rank and Stocks to Consider
Fiat currently carries a Zacks Rank #3 (Hold). Shares of the company have depreciated 32.3%, year to date.
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