Fiat Chrysler: Doing The Numbers On The Merger Spread With PSA

A lot has already been written about the planned merger between Fiat Chrysler (NYSE: FCAU) (BIT: FCA) and French PSA Group (EPA: UG), to create the world’s fourth-largest automaker. The companies said last week they had signed a binding agreement formalizing the merger, after originally announcing a deal in October.

However, most of the articles have been written from a global perspective, and not from the perspective of the individual shareholder of either company. Also, what has been written about the implications for shareholders has not always been entirely accurate.

To make sure the Fiat Chrysler / PSA – merger truly is a merger of equals (50/50) the merger has been made a bit more complex than your average stock merger, to make sure both entities go into this transaction with equal company value.

In this short article, I’ll briefly explain what both shareholders of Fiat Chrysler and PSA can expect to happen in 2020, leading up to the eventual merger (if all goes well). Also, I’ll provide a tool that readers can use to see the real-time merger spread based on live share prices on this special situation.

Fiat Chrysler
Over the course of 2020 shareholders of Fiat Chrysler will receive, subject to approval by its shareholders, a 1.1 billion euro ordinary dividend. This works out to about $ 0.78 per share.

On top of this, shareholders will also receive a 5.5 billion euro special dividend or $ 3.89 per Fiat Chrysler share.

PSA shareholders will receive a 1.1 billion euro ordinary dividend in 2020 as well, which is € 1.22 per share.

Also, PSA will spin-off its 46% stake in Faurecia (EPA: EO), a French automotive supplier to its shareholders. Faurecia is listed on Euronext Paris. Based on Faurecia’s current stock price, the spin-off is worth € 3.38 per PSA share.

Combined entity
When the merger transaction closes, Fiat Chrysler shareholders will receive one share in the new combined entity for one “old” share. PSA shareholders will receive 1.742 shares in the combined entity for one “old” PSA share they own.

Following the closing of the merger, the newly merged entity will spin-off Italian automation company Comau. This spin-off will be for the benefit of both former Fiat Chrysler shareholders, and former PSA shareholders. It’s not clear at this point (at least to me) whether Comau will IPO on its own, or will be sold.

So, let’s put all of this into numbers. The sheet below shows a calculation of the value of all the moving parts in this merger. The sheet updates itself automatically based on current market prices, so feel free to check back whenever you would like to see an update.

As I’m writing this the merger spread between Fiat Chrysler share and PSA Group is a little shy of 7% in favor of Fiat Chrysler. This basically means any investor wanting to invest in the combined entity would currently be better off investing in FCAU shares than PSA shares. Of course, this is also dependent on personal tax circumstances with regards to the dividends payable in 2020 (especially Ford Chrysler’s special dividend).

A 7% merger spread looks somewhat attractive, but this deal isn’t expected to close for the next twelve to fifteen months. Also, the merger will most likely face intense regulatory scrutiny from competition authorities in especially Europe (and with that also the risk of the merger being either blocked, delayed, or eventually approved only with significant concessions).

Although I hold no position at this point, the Fiat Chrysler / PSA merger is definitely one of the major mergers to watch in the upcoming 2020.