Fiat Chrysler Automobiles NV agreed to shrink a dividend tied to its merger with PSA Group by 2.6 billion euros (US$3.1 billion) to shore up the combined company’s finances in the wake of the COVID-19 pandemic.
The special cash payout to Fiat Chrysler shareholders is to be reduced to 2.9 billion euros from 5.5 billion euros, the automakers said on Monday evening.
The reduction would be partially offset by the Italian-American company’s investors getting a stake in French supplier Faurecia SE, and the boards of both automakers are to consider an additional dividend later.
The changes would give PSA CEO Carlos Tavares more cash to work with as he takes the helm of an empire making Peugeots in France, Alfa Romeos in Italy and Jeeps in the US. He has his work cut out for him after COVID-19 forced manufacturers to shut their showrooms and plants for much of this year.
While “neutral in theory,” as the reduced distributions accrue to the combined company’s balance sheet, the new terms on balance “are skewed to PSA,” Jefferies analysts led by Philippe Houchois wrote in a note. “FCA’s shareholders are now assuming some market risk on Faurecia shares.”
The new dividend terms are somewhat of a setback for the Agnelli family that controls Fiat Chrysler, which is led by chairman John Elkann, but as a consolation for the smaller cash payout, PSA and Fiat Chrysler holders are each to receive 1.36 billion euro stakes in Faurecia after their merger closes.
Under the original terms of the deal, PSA was going to distribute its entire 46 percent stake in Faurecia to only its investors.
The Fiat Chrysler and PSA boards are also to consider a potential distribution of 500 million euros to each company before they close their deal, or 1 billion euros afterward to shareholders of the combined entity, which is to be named Stellantis.
The companies also raised the estimated annual synergies from the combination to 5 billion euros from 3.7 billion euros, and the one-time cost of implementing them to as much as 4 billion euros.
“The big question in our minds is where the 5 billion-euro synergy total came from,” RBC Capital Markets analyst Tom Narayan wrote in a note. “PSA has long said that they would not close plants for either party.”
Other unknowns include possible asset sales and how PSA would integrate FCA into its strategy to comply with Europe’s tough emissions rules, he said.
Exor NV, the Agnelli family’s investment company, said that it remains committed to the deal, which is expected to be completed by the first quarter of next year.
“Exor strongly supports the steps taken by the companies to maintain the economic value and balance within the original combination agreement, while enhancing the strength of the capital structure of Stellantis at launch,” the company said in a statement.
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