The marriageable couple Fiat Chrysler Automobiles (FCA) and Peugeot maker PSA can finally walk down the aisle. The Jeep maker has agreed to cut a huge dividend tied to its planned merger by almost half, but its shareholders will get more savings and shares in parts maker Faurecia. The change will boost the balance sheet of the future Stellantis group and will eliminate the anguish that persists in the operation.
Moderation in the Covid-19 era makes sense on multiple levels. By cutting an originally planned payment of 5.5 billion euros to 2.9 billion, Fiat admits the inevitable: that it needs to preserve cash in the pandemic.
It also eliminates the threat of a challenge from PSA shareholders to the terms of the original deal. Fiat has been burning cash in the crisis. Paying himself a huge bonus would also have been odd after he had secured a € 6.3 billion loan backed by the Italian state, the biggest help of the crisis for a European carmaker.
Fiat shareholders are being compensated by other means. Under the terms of the revised deal revealed Monday, PSA will distribute its 46% stake in auto parts maker Faurecia to all Stellantis shareholders, rather than just PSA’s. This means that FCA investors will get 50% of that stake of around 2,500 million euros of current market value, or almost 1,300 million, in addition to the 2,900 million euros of cash dividend.
Even adding Faurecia shares, Fiat investors appear to be € 1.3 billion short of the original dividend plan. But they can get an optional dividend of 500 million later. And they have been promised that their share of the annual savings will be worth at least 5 billion euros, more than originally estimated at 3.7 billion euros and that it will amount to about 35 billion once they are taxed and capitalized.
Tuesday’s rally in Fiat shares reflects in part the fact that its shareholders could have expected a stronger blow to send the ball of the deal above the net. But it is also driven by much greater confidence in its completion.
At current market prices, the merger spread between the two stocks has dropped to below 4% from nearly 12% prior to the announcement of the deal. That is the value of eliminating a large dose of distress.