MILAN, Italy—Fiat Chrysler Automobiles NV and Peugeot maker PSA Group of France agreed last week to merge in a deal that creates one of the world’s largest auto makers by volume with a market value of $48.4 billion. Fiat Chrysler and PSA shareholders will each initially own 50 percent of the new entity, both companies said in a joint statement. John Elkann, Fiat Chrysler’s chairman, will become chairman of the newly merged company, while Peugeot Chief Executive Carlos Tavares will be CEO with an initial five-year term.
Fiat Chrysler and Peugeot had already discussed a potential merger earlier this year, and many of the specifics were hashed out at the time, according to people familiar with those discussions. Those talks were shelved in May when Fiat Chrysler sought a deal with Renault instead. But that deal fell through at the 11th hour after Elkann failed to get the full backing of the French government and Renault’s alliance partner Nissan Motor Co.
The collapse of the Renault deal in June could prove costly for Elkann and his family. Since those failed talks, Peugeot’s stock has risen sharply, and the French company has surpassed Fiat Chrysler in market value. Potentially complicating the merger, Fiat Chrysler is in the middle of contract talks with the North American labor union United Auto Workers. However, Peugeot has no presence in the U.S. so the merger plan is unlikely to threaten jobs there.
Both car makers have significant market shares in Europe providing the opportunity for cost cutting. Together they would have a market share of about 23 percent in the region, just behind Volkswagen AG.