Shares in Fiat Chrysler Automobiles (FCA) increased sharply in Milan on Tuesday after the automaker and French partner PSA modified the terms of their merger deal, with FCA’s shareholders getting a smaller cash payout but a stake in another business.
FCA and PSA, which in 2019 agreed to merge to give birth to Stellantis, the world’s fourth-largest automaker, said late on Monday they had amended the accord to conserve cash and better deal with the COVID-19 challenge to the auto sector.
Milan-listed shares in Fiat Chrysler increased by nearly 8% by 1000 GMT, while PSA gained 1.5%.
Under the revised terms, FCA will slash from 5.5 billion euros ($6.5 billion) to 2.9 billion euros the cash portion of a special dividend its shareholders are set to get on the conclusion of the merger.
However, PSA will for its part delay the planned spin-off of its 46% stake in auto parts maker Faurecia until after the deal is finalized. That means all Stellantis shareholders – and not just the present PSA investors – will get shares in a company which has a market value of 5.8 billion euros.
Based on Stellantis’ 50-50 ownership structure, both companies’ respective shareholders will each receive a 23% stake in Faurecia.
Analysts welcomed the 2.6 billion euros in additional liquidity for Stellantis’ balance sheet and also as the boost in projected synergies to over 5 billion euros from 3.7 billion.
There was also further reassurance as the two automakers confirmed they expected the deal to close by the end of the first quarter of the next year.
“All told, the two players emerge as winners,” broker ODDO BHF said in a note.
“Of the two, FCA might be a bit more of a winner in the short term given the structure of the deal and the numerous payouts to shareholders to come in the quarters ahead (potentially close to 5 billion euros versus the current capitalization of around 16 billion euros).”
The special dividend for FCA shareholders had proved controversial after Italy offered state guarantees for a 6.3 billion euro loan to the company’s Italian business.
“These announcements should, at last, end the debate over the financial terms of the merger, which had become a big topic and was still penalizing the two groups’ share performances,” ODDO BHF said.
PSA and FCA said they would think about paying out 500 million euros to shareholders in each firm before closing or else a 1 billion euro payout to Stellantis shareholders afterwards, depending on the market situation and company performance and outlook.
Both companies have this year scrapped dividend payments on 2019 results, each worth 1.1 billion euros, as the sector continues to deal with the coronavirus crisis which has sent car sales declining.
FCA CEO Mike Manley had said last week he and PSA CEO Carlos Tavares were aware of the need for the two companies to get to the merger with the strongest balance sheet possible.
“It was a courageous and realistic move by management given the need to hang on to liquidity,” said Roberto Lottici, fund manager at Banca Ifigest in Milan.
