31 Oct
by Vitaliy Dadalyan
(Bloomberg Opinion) — Fiat Chrysler Automobiles NV may have struck too fine a bargain with Peugeot SA. The Italian carmaker has extracted a chunky premium in exchange for agreeing a takeover that’s being dressed up as a merger. At first blush Peugeot’s shareholders aren’t convinced it’s worth it, and it’s not hard to see why they’re skeptical.While there’s no binding deal yet, the terms have been set to ensure Fiat investors take more out of the combination than they put in. The company’s market value was already smaller than Peugeot’s going into the tie-up. Even so, its shareholders — with the billionaire Agnelli family the largest — would withdraw about 5.8 billion euros ($6.5 billion), mainly from a special dividend, before the carmakers come together. That further diminishes Fiat’s financial contribution to the enlarged group.For their part, Peugeot investors will siphon off their company’s stake in car parts-maker Faurecia SE. That’s worth only 2.6 billion euros. Deduct the special dividend and Faurecia from Fiat’s and Peugeot’s respective market values on Tuesday, and the Italian company’s shareholders will contribute about 40% of the combined equity in return for a 50% stake in the new Peugeot-Fiat. Plus they’ll get a half share in the value of any cost savings.True, Fiat was valued closer to Peugeot when judged on average values over the past three months. On that basis, Fiat might deserve some top-up. Still, that alone doesn’t justify the premium.Why is Peugeot being so generous? One reason is that this is really a low-premium takeover by the French company. Peugeot is getting the balance of power in the boardroom, providing the chief executive officer in Carlos Tavares and nominating five out of 10 other roles.The other is that Peugeot’s board thinks it really needs this deal, and is willing to pay for it. Strategically, Fiat brings the U.S. market and the chance to accelerate the development of electric vehicles. Financially, the cost savings are put at 3.7 billion euros yearly. Taxed, capitalized at Fiat’s earnings multiple and adjusted for the more than four years that will be needed to achieve them, these savings could be worth about 6 billion euros even after one-off costs. That’s 3 billion euros to each side.For now the market is taking little on trust. Small wonder. The companies say there will be no plant closures, which puts a lot of pressure on other areas — suppliers in particular — to fund the savings. Peugeot’s and Fiat’s market values have jointly added less than 1 billion euros since talks leaked.Peugeot is presumably counting on the support of its three core investors — the French state, the founding Peugeot family and China’s Dongfeng Motor Group — to get a deal through a shareholder vote if one is finally agreed. But in the market, the jury’s out.To contact the author of this story: Chris Hughes at [email protected] contact the editor responsible for this story: James Boxell at [email protected] column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
