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Fiat And PSA Reiterate Their Merger Plans After Dividend Cut Reports

Fiat And PSA Reiterate Their Merger Plans After Dividend Cut Reports
Recent reports that the two ‘soon to be merged’ car makers Fiat Chrysler (FCA) and PSA were planning to spinning off assets to cut a planned 5.5 billion euro ($6.2 billion) cash payout to FCA shareholders were dismissed by the companies and reiterated that the companies were intent on sticking to the time line of merger for which an agreement was signed by them last year.
Recently, there were reports published in newspapers peculating that FCA was possibly planning to implement changes to the dividend in Italian business daily Il Sole 24 Ore. A spokesman for the company dismissed the claims in the reports.
On the other hand, FCA’s merger partner PSA said it remained “lucid in the face of the regular speculations to which this merger project is subject”. The binding agreement signed by the two companies in December last year was being implemented by it, the company added.
“The structure and terms of the merger are agreed and remain unchanged,” the FCA spokesman said.
Italian-American group FCA and France’s PSA wants to get their merger completed by the first quarter of next year.
According to the report published by Il Sole, FCA could hand over shareholders assets in place of the special dividend in order to conserve cash which has drawn criticism in Italy after the company agreed a 6.3 billion euro state-backed loan to help it through the coronavirus crisis.
The reports however also claimed that the talks on the issue were at a very early stage and no decision had been taken. Reports also added that the aim was to keep the 5.5 billion euro value of the special dividend but to turn it from cash to assets.
FAC may not be legally barred from paying the dividend because of the state-backed loan granted to it since it does not have to be repaid before 2021. Further the loan will also be paid back by the Dutch parent company Fiat Chrysler Automobiles NV. However the appropriateness of such a large cash payout during the crisis has been questioned by Italian politicians.
In its report, Il Sole said had said that the company is considering a hots of options including spinning off the Sevel van business or initiating a 50-50 joint venture between the two groups - which could be valued at between 2.5 and 3 billion euros. The report also claimed that FCA was also considering a spinoff of its Alfa Romeo and Maserati brands.
The concerns of the European Union about competition in the van segment could be addressed by spinning off Sevel. However reports had said that this option appeared to be a complicated one because it would require PSA to transfer its 50% stake in the unit to FCA.
A second option was to scrap the planned spin-off of PSA’s controlling stake in parts maker Faurecia, the reports said.
However, PSA could instead sell its Faurecia stake before the merger and retain the cash derived from the sale with the merged company, said reports quoting a source close to the matter.

Christopher J. Mitchell

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