Stellantis - “a transaction of significant size which went through a complicated period“

Announced in 2019, the Stellantis deal - a 50/50 merger between Fiat Chrysler Automobiles (FCA) and Peugeot SA (Groupe PSA) - was completed on January 16, 2021. Stellantis - a multinational automotive group under Dutch law, which resulted from this merger - is well established in Europe, North America and Latin America, and also has real growth potential in major markets such as China, Africa, the Middle East, Oceania and India. Listed in Paris, Milan and New York, Stellantis intends to leverage its size and economies of scale to invest in innovative mobility solutions for its customers, and targets annual synergies of more than 5 billion euros on a run-rate basis.

With 300,000 employees, Stellantis operates fourteen car brands, including five from the PSA Group (Citroën, DS Automobiles, Opel, Peugeot and Vauxhall) and nine from FCA (Abarth, Alfa Romeo, Chrysler, Dodge, Fiat, Jeep, Lancia , Maserati and RAM).

In this new era of mobility, its brands’ portfolio is uniquely positioned to deliver innovative and sustainable solutions to meet the evolving needs of customers, notably in terms of electrification, connectivity, autonomous driving and shared ownership.

The net sales of the new entity amounted to 134.4 billion euros in 2020, of which 86.7 billion euros came from FCA. Cyrille Pérard, Partner, Perella Weinberg Partners Mehdi Benlamlih, Director, Perella Weinberg Partners.

Why did you decide to present this transaction as part of the Club des Trente award?

Mehdi Benlamlih: Stellantis is one of the key landmark transactions that we have been able to complete.

Cyrille Pérard: It is a transaction of significant size which went through a complicated period, in particular due to the Covid crisis and its impact on the cash positions of the two companies. It has required some ingenuity to adjust the deal parameters without impacting the balance of the transaction. This merger creates a world champion in an extremely important industry. We were delighted to have been involved in it. By its size and structure, this deal deserved to be presented to the Club des Trente.

All stakeholders wanted to make this value-creating transaction happen. To get there, we had to find the right balance. So last summer we had to adjust the deal parameters without jeopardizing the transaction.

Who were the main financial advisers and their roles in this transaction?

Cyrille Pérard: Messier & Associés (Erik Maris) and Morgan Stanley were advising the Managing Board of the PSA group. Perella Weinberg Partners acted as an advisor to the Supervisory Board, chaired by Louis Gallois. Zaoui & Co advised the Peugeot family. On the other side, it was mainly Goldman Sachs who worked on the transaction. D’Angelin was also involved as well as some other banks.

How many people were involved in your team on the Stellantis deal?

Cyrille Pérard: We had a core team of 6 people, including notably David Azéma (Partner) and Uel Migan (Managing Director).

Mehdi Benlamlih: We also had some support from PWP colleagues, based in New York and London, with strong expertise in the automotive industry.

What were the main steps of the transaction?

Mehdi Benlamlih: Following the failure of the discussionsbetween FCA and Renault at the end of May / early June 2019, discussions between FCA and PSA resumed in August 2019.

Cyrille Pérard: This attempted transaction between FCA and Renault probably served as a catalyst. Both groups really wanted to make a deal. It has raised both parties’ awareness on the benefits of scale in a world where size matters to face the challenges of tomorrow (electric car, autonomous car, etc.). Manufacturers that do not have a critical size may end up in a difficult position. The failed deal between FCA and Renault has rekindled interest for a deal between FCA and PSA.

Mehdi Benlamlih: On October 31, 2019, the merger of equals was announced. PSA and FCA have then signed a Binding Combination Agreement on December 18, 2019, for a 50/50 merger of their activities, in a pre-Covid context. In September 2020, Fiat Chrysler and PSA announced an adjustment to the terms of their proposed merger: the exceptional dividend paid by Fiat Chrysler to its shareholders before the merger was reduced to €2.9 billion (instead of €5.5 billion); the distribution by PSA of its 46% stake in Faurecia to its shareholders will ultimately be carried out after the merger, to the benefit of all Stellantis shareholders. The approval by the European Commission in December 2020 and the approval by PSA and FCA shareholders on January 4, 2021 enabled the closing of the transaction on January 16, 2021.

What were, according to you, the main challenges for this transaction?

Mehdi Benlamlih: First of all, it was the nature and diversity of the key stakeholders involved in the various discussions (among them, the Peugeot and Agnelli families, Bpifrance and Dongfeng Motors), then it is the principle of a merger of equals with the associated challenge to agree parity adjustments, finally, it is the heritage of the two groups and the specific identity of each of their brands. Fiat-Chrysler is itself a combination of two legacies, in Italy and in the United States. Stellantis managed to preserve these legacies through operational headquarters and stock market listings in France, Italy and the United States as well as through a consistent and complementary portfolio of brands.

As for the context of the transaction, the uncertainty and the economic slowdown resulting from Covid made it necessary to adjust the terms of the merger. Finally, let’s not forget the anti-trust approval which was successfully anticipated with remedies identified early in the process.

Despite all these challenges, this deal brought many benefits, including size, geographic diversification, the ability of the merged group to better cope with longterm challenges (new mobility, market disruption, etc.), potential for synergies, etc.

Cyrille Pérard: The project of a merger of equals entailed some complexity in terms of relative values and governance. The specificity of this transaction? A premium was paid by PSA shareholders to FCA shareholders in exchange for a governance slightly at the benefit of PSA shareholders. Despite this - and the distribution of the dividend proves it - the two groups had a real desire to carry out a 50/50 transaction. This was one of the fundamental principles of the transaction. Management, shareholders and advisors were all aware that the value to be created from the merger was significant and justified the payment of a small premium to FCA shareholders.

Can we say that this transaction comes against certain stereotypes such as “automotive mergers do not work” or “mergers of equals do not exist”?

Cyrille Pérard: One of the key parameters of the transaction is Carlos Tavares. He is seen as one of the leaders capable of carrying out such a transaction and of creating value to the benefit of all shareholders. He has shown this in the past. He is the cornerstone of the MoE’s success (Editor’s note: merger of equals). Carlos Tavares was also the essential link between the various parties to the transaction.

Like most of the people that were involved in the negotiations, I am sure that for the companies, this is a very good deal, especially in terms of geographies and in terms of brands… It is also a very good transaction to face tomorrow’s challenges in an industry that has consolidated and where size matters to count in the playing field.

What was the impact of Covid on the transaction?

Mehdi Benlamlih: From a strategic and industrial standpoint, the Covid has, on the contrary, strengthened the rationale of the transaction. Resilience is an important factor to face this type of crisis.

Cyrille Pérard: The Covid did not play a very important role because the deal was already signed. All the stakeholders wanted to make this deal because it was THE right deal for everyone. But the Covid has had an impact on cash positions in a sector where large companies cannot imagine not having billions of cash on the balance sheet. This is their way of doing business. In this context, distributing a dividend of 5.5 billion euros became impossible. Without all these Covid-related issues, the deal could have been closed more quickly and Stellantis pro forma balance sheet position would have not needed to be preserved.

How was the transaction perceived by the market?

Mehdi Benlamlih: The transaction was unanimously praised by the market in a very positive way. One aspect in particular was the potential for synergies. The first range of synergies announced was perceived as in the low end of what Stellantis could achieve. The fact that Carlos Tavares will be behind the wheel was also a factor of confidence. Finally, it was the strategic rationale of the transaction that was able to convince the financial markets.

Could you explain the main advantages of this transaction for PSA or for FCA?

Mehdi Benlamlih: The tenth and eleventh world largest car manufacturers merged to form the fourth. In the sector where Stellantis operates, the size factor brings real benefits. Another upside is to have a comprehensive, complementary brand portfolio that covers the entire range and captures the full depth of the market for passenger cars.

Cyrille Pérard: Another important aspect is geographic diversification. FCA was a group with considerable exposure to North America, and PSA was a predominantly European group. It is a mistake to say that this is a consolidation between two European groups. Even though FCA has a very European history, North America’s weight was very important in terms of turnover.

Mehdi Benlamlih: The new group benefits from a balance between the European part and the North American part, with a significant presence in the APAC zone. The combination also makes it possible to pool the investment capacities of the two groups, allowing for more substantial investments, particularly in new mobility, to better cope with increasingly stringent regulatory constraints, and to become a key player in new mobility solutions. The synergies will also make it possible to have more financial headroom and to further strengthen the investment capacities of the new group.

Cyrille Pérard: PSA and FCA had the choice either to remain a regional player and select their areas of investment for the future, or to participate fully in all developments in the sector. The combined group is expected to have an investment capacity of €15 billion per year. Such an amount is necessary to face the competition. This is a key stake for this transaction.