By Eric Sylvers in Milan and Ben Dummett in London
Fiat Chrysler Automobiles NV and PSA Group changed the terms of their merger to preserve cash as the two car makers shore up their financial positions following the negative effects of the coronavirus pandemic.
Fiat Chrysler will now pay a cash dividend of EUR2.9 billion ($3.44 billion) to its shareholders ahead of the closing of the merger, down from the previously agreed EUR5.5 billion, the companies said in a joint statement Monday.
PSA, which owns the Peugeot and Citroën brands, agreed to scrap an agreement to spin off its 46% stake in Faurecia SE ahead of the closing. Instead, the stake in the publicly traded auto-parts maker, which is worth about EUR2.7 billion, will be spun off following the closing.
Announced in October, the all-share transaction valued the combined company at close to $50 billion. Both sides agreed to a share swap to live up to the deal's merger-of-equals billing. To help balance the values of the two companies, they agreed on the cash dividend for Fiat Chrysler's shareholders, and PSA's shareholders were to be given the Faurecia stake.
However, the FCA's cash dividend grew increasingly controversial among some PSA investors because of the pandemic fallout and the need to preserve cash. Reducing the payout alleviates those worries. At the same time, by getting half of PSA's stake in Faurecia after the deal closes, FCA shareholders will receive a total payout approaching the same level as previously agreed, but part of that will be in Faurecia stock instead of all cash.
The two companies said they are still on track to complete the deal by the end of March. Following the merger, the company will be called Stellantis.
The cut to the cash portion of the dividend comes after Fiat Chrysler, like most of its peers, reported a second-quarter loss as coronavirus lockdowns halted production and led to a drop in sales. While Fiat Chrysler has abundant liquidity, in the second quarter it burned much more cash than it had coming in. Fiat Chrysler Chief Executive Mike Manley has said he is expecting a strong second-half performance from the company and that improvement was already apparent at the end of the first half.
The two companies said their boards will consider paying their respective shareholders a EUR500 million dividend before closing or a EUR1 billion dividend to all shareholders following the conclusion of the merger. A decision on that potential payout, which will be paid only if approved by the boards of both companies, will be made in the coming months based on how the companies perform and on market conditions.
When the two companies first announced their deal, it included a separate EUR1.1 billion dividend to be paid by each company to their shareholders, but that was scrapped in May when the extent of the damage from the pandemic became clearer.
The companies said they expect synergies following the full integration of the two companies to be more than EUR5 billion a year, up from a previous estimation of EUR3.7 billion.
--Nora Naughton contributed to this article.
Write to Eric Sylvers at firstname.lastname@example.org and Ben Dummett at email@example.com