A Peugeot logo pictured on a car in Bayonne, southwestern France, Oct.31, 2019.
A Peugeot logo pictured on a car in Bayonne, southwestern France, Oct.31, 2019.

MILAN, ITALY - The boards of Fiat Chrysler and PSA Peugeot announced Thursday fast-moving plans to merge the two companies creating the world's fourth-largest automaker with enough scale to confront “the new era in mobility.”

The merger would bring together Italian-American Fiat Chrysler, with its strong footprint in North America where it makes at least two-thirds of its profits, and France's PSA Peugeot, the No. 2 automaker in Europe. Both lag in China, despite the participation of the Chinese shareholder Dongfeng, in PSA Peugeot, and are catching up in the transition to electrified powertrains.

The 50-50 merger is expected to create synergies of 3.7 billion euros ($4 billion), a figure that the automakers said they expect to achieve without any factory closures - a concern of unions in both France and Italy where the carmakers have more model overlap.

The new company would have combined revenues of 170 billion euros, an operating profit of over 11 billion euros and produce 8.7 million cars a year - behind Toyota, Volkswagen and the Renault-Nissan alliance. The combined market capitalization would be around $50 billion.

Once a merger is finalized, PSA Peugeot CEO Carlos Tavares will be chief executive of the new company with Fiat Chrysler Chairman John Elkann taking the role of chairman.  Fiat Chrysler CEO Mike Manley would have a senior executive role and work closely with Tavares.

“This convergence brings significant value to all the stakeholders and opens a bright future for the combined entity,” Tavares said in a statement.

Manley called it “an industry-changing combination,” and noted the long history of cooperation with the Groupe PSA in the industrial vehicle sector in Europe.

The 11-member board will be made up of five members from each company plus Tavares, who is locked in as CEO for five years.

The automakers said that the new company would be able to meet the challenges of powertrain electrification, connectivity and autonomous driving “with speed and capital efficiency.”

The combined company will be able to share in the cost of developing those technologies with their “strong global R&D footprint,” they said, adding that will also save on investments in vehicle platforms and save money with greater purchasing power.

Both companies “share the conviction that there is compelling logic for a bold and decisive move that would create an industry leader with the scale, capabilities and resources to capture successfully the opportunities, and manage effectively the challenges in the new era in mobility,” the statement said.

The merger decision comes about five months after a similar deal with French automaker Renault fell apart, mostly over French government concern about the role of Renault's Japanese alliance partner Nissan. There were no signs of resistance to this deal, beyond concerns for jobs.

French Finance Minister Bruno Le Maire answers reporters, Oct. 31, 2019 in Paris.

French Finance Minister Bruno Le Maire said in a statement that he “favorably welcomes” the proposed merger.

“This operation responds to the automobile sector's need to consolidate to face the challenges of future mobility,” Le Maire said, adding that the government would be vigilant about preserving French factories and the location of company headquarters.

He also is seeking that the new group will create a European electric battery industry, something the French government has pushed for to ensure that European carmakers can reduce their dependence on U.S. and Asian battery technology.

The companies said head offices would continue to operate in France, Italy and the United States, and that shares would be traded in the main exchanges in those three countries. The parent company would be based in the Netherlands, as is currently the case with Fiat Chrysler.

European automakers have been eyeing consolidation for years in a bid to share the costs of new technology and tackle the issue of overproduction on the continent. Fiat gains some of the advantages that Peugeot has developed in electrified powertrains that should help ease its transition in the face of tough new EU emissions standards. And PSA gains access to North America, which it has long sought.

The prospective FCA-PSA tie-up with Peugeot “follows intensive discussions between the senior managements of the two companies.” Both have strong shareholder participation by the founding families - the Peugeots in France and the heirs to the Agnelli family in Italy, represented by Elkann.

As part of the agreement, the main shareholders - the Peugeots, the Agnelli family investment arm Exor, as well as the Chinese investor Dongfeng and the French state investment bank - agree to maintain their stakes for seven years. The only exception is that the Peugeots could increase their stake by up to 2.5% during the first three years by buying shares from Dongfeng and the French investment bank.

The next step in the deal is expected to be a signing of a Memorandum of Understanding, which could come before the end of the year.