Fiat Chrysler, Peugeot owner agree binding $50 billion merger deal

PARIS/MILAN (Reuters) – Fiat Chrysler (FCHA.MI) and Peugeot maker PSA (PEUP.PA) have reached a binding agreement over their roughly $50 billion merger that will reshape the global car industry.

France’s PSA and Italian-American Fiat Chrysler (FCA), which are yet to decide on a name for their new company, will now start work on delivering their pledge to cut costs by 3.7 billion euros ($4.1 billion) a year without closing factories.

That will be all the harder with politicians and strong labour unions in both France and Italy worried about job losses at a combined business that will employ around 400,000 people.

“The merged group will have to make massive savings and probably also close plants, even if the CEOs’ choice of words is different,” said NordLB autos analyst Frank Schwope after the binding agreement was announced on Wednesday.

French finance minister Bruno Le Maire, meanwhile, welcomed the move to bring together Europe’s second and third biggest carmakers, while adding the French government – a key shareholder in PSA – would remain vigilant on matters including where “decision centres” are located within the new group.

PSA and FCA (FCAU.N) announced preliminary plans six weeks ago for a 50-50 all-share tie-up that will rank as the world’s fourth-largest automaker behind Volkswagen, Toyota and the Renault-Nissan alliance.

The deal is aimed at helping both companies cope with slowing autos demand and the cost of building cleaner cars to meeting tougher emissions regulations.

With brands including Jeep, Dodge, Ram, Chrysler, Alfa Romeo, Maserati and Opel, the companies sold a combined 8.7 million vehicles last year, but have potential manufacturing capacity of 14 million, according to forecasters LMC Automotive.

They have yet to say precisely how they plan to tackle that potential excess, and which car platforms – or underlying vehicle structures – they will focus on, only detailing that most production would be concentrated on two platforms.

“At this stage nothing is decided. We have been evaluating what the opportunities are,” PSA Chief Executive Carlos Tavares, who will head up the merged entity as CEO, told reporters.