Fiat Chrysler and PSA Forge Ahead With Merger Plan Despite GM Lawsuit
December 01 2019 - 7:29AM
Dow Jones News
By Eric Sylvers in Milan and Nick Kostov in Paris
Fiat Chrysler Automobiles NV and Peugeot maker PSA Group of
France are moving forward with plans to cement their planned $50
billion merger in coming weeks, brushing aside concerns that a
recent lawsuit by U.S. rival General Motors Co. could threaten the
auto industry's biggest deal in decades.
The two companies wrote to their employees last week to say
negotiations were progressing and they aimed to sign a memorandum
of understanding soon. More than 50 people have been working on the
merger project since Fiat Chrysler and PSA announced their deal at
the end of October, the companies told employees in an internal
document, a copy of which was viewed by The Wall Street
Journal.
Fiat Chrysler and PSA updated their employees days after GM
filed a racketeering suit alleging that Fiat Chrysler bribed U.S.
union negotiators to gain a competitive advantage during the
collective bargaining process in 2011 and 2015.
The GM suit directly accuses Sergio Marchionne, Fiat Chrysler's
longtime chief executive who died last year, of authorizing bribes
as the car maker sought to gain an advantage over GM by lowering
its own labor costs.
While legal experts say GM's lawsuit faces an uphill battle,
some financial analysts have said the accusations could slow down
negotiations between Fiat Chrysler and PSA.
Fiat Chrysler has denied the allegations and called them
"meritless."
The merger partners have discussed the lawsuit, but it is
unlikely to throw the deal off track, according to people on both
sides of the talks. PSA agrees with Fiat Chrysler's position that
the claim is meritless, some of these people said, adding that
lawyers and other specialists had examined GM's claim for the
French side. PSA would likely be supportive of any countermove,
such as a countersuit, that Fiat Chrysler could choose to make
against GM, these people said.
If the contention drags on past the closing of the deal, PSA
Chief Executive Carlos Tavares would be well qualified to deal with
it, these people said. A countersuit from Fiat Chrysler would
likely lead to a discussion between the two car makers, and Mr.
Tavares developed a good working relationship with GM Chief
Executive Mary Barra when buying the U.S. company's European
business in 2017.
The accusations surprised both car makers, and people close to
them have suggested that the lawsuit is an aggressive attempt by GM
to gain leverage over Fiat Chrysler, either through financial
damages or by making the merger harder to achieve. Fiat Chrysler
has long sought a partner to help spread out the cost of developing
new vehicles, a push that has become more pressing as global auto
sales have peaked.
The GM suit relates to a long-running federal probe into
corruption between leaders at the United Auto Workers union and
labor-relations executives at Fiat Chrysler. UAW President Gary
Jones stepped aside from his role in early November, days after
federal prosecutors charged one of his top aides with embezzling
union dues. Fiat Chrysler has said the wrongdoing was perpetrated
by a small group of individuals acting in their own interest.
"The timing of the suit has everything to do with revelations
from the U.S. government's ongoing investigation and nothing to do
with the proposed FCA-PSA merger," GM said in a statement.
Shareholders in Fiat Chrysler and PSA will each collectively own
50% of the new entity that will emerge from the merger, which is
expected to close by the end of 2020. The new company will produce
almost as many cars in Europe as Volkswagen AG, the continent's
largest car maker, and will have a large presence in the U.S. and
South America. Mr. Tavares will have the same role with an initial
five-year term.
In a positive sign for negotiators, unions representing PSA
workers have generally welcomed the deal. At a PSA European council
meeting last week, 15 trade unions gave a favorable opinion on the
merger, while one trade union signaled its opposition to the deal
and another abstained, the car maker said.
The message to Fiat Chrysler and Peugeot employees called the
memorandum of understanding "the formal document that signals the
willingness of both companies to work together to create a 50/50
merger." The negotiation process is being overseen by Doug
Ostermann, Fiat Chrysler's group treasurer and global head of
business development, and Olivier Bourges, PSA's executive vice
president for program and strategy groups. The two have established
nine "workstream teams" to work on the negotiations, the document
said.
Fiat Chrysler and PSA told employees that the two companies
would remain competitors until the merger is completed.
--Nora Naughton contributed to this article.
Write to Eric Sylvers at eric.sylvers@wsj.com and Nick Kostov at
Nick.Kostov@wsj.com
(END) Dow Jones Newswires
December 01, 2019 07:14 ET (12:14 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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