Fiat Billionaires Can Extract a Price From Peugeot
Fiat is back at the table to broker a merger with a French carmaker. This time, it can be tougher on the terms.
It takes two to tango.
Photographers: Christophe Morin/Federico Bernini/Bloomberg
Right now is a highly opportune moment for PSA Group boss Carlos Tavares to negotiate a merger with rival European carmaker Fiat Chrysler Automobiles NV. Shares in PSA, the owner of Peugeot, have had a great run in recent months, making them a strong deal-making currency. The flip side is that this is a reason for shareholders in Fiat to demand that any “merger of equals” actually includes a premium for them.
The two carmakers have relatively similar market capitalization but the precise details matter. Crunch the duo together at their closing market values on Tuesday and Peugeot shareholders would deserve to own 55% of the combination. The snag is they would then enjoy more than half of the future value creation from a deal. That’s a bit unfair: It takes two to tango. This could be solved by giving each side 50% ownership, but shrinking Peugeot via a big dividend ahead of the deal closing. That way each side would contribute an equal amount of equity value, and own and equal share of the bigger group.