Fiat Chrysler (FCA) and Peugeot Citroen (PSA) announced a merger Thursday to build the world's fourth largest automaker, Beijing time reported Thursday. The two sides will each own 50% of the combined company and create a $50 billion auto giant.
As of 17:05, Fiat Chrysler rose 5.34% in front of the market, and the company has risen more than 10% in Tuesday and Wednesday trading days.
The two companies said in a statement that the negotiations opened the way for the creation of a new group, which will have global scale and resources, with 50% of the shares held by PSA group shareholders and 50% by FCA shareholders.
In a rapidly changing environment, with new challenges in automotive connectivity, electrification, sharing and autonomous driving, the combined entity will leverage its strong global R & D footprint and ecosystem to promote innovation and meet these challenges with speed and capital efficiency.
FCA Chairman John Elkann will be chairman of the combined group, and PSA chief executive Carlos Tavares will be the new CEO.
The two sides said the merger would bring about a synergy of 3.7 billion euros ($4.1 billion) a year.
About five months ago, Fiat Chrysler and Renault launched merger talks, but failed.
Dongfeng Motor Company may become a major shareholder in the new company after the merger of Fiat Chrysler and Peugeot Citroen. Dongfeng is expected to continue to hold a stake in the French company.
Bill Russo, founder of Shanghai consulting firm mobility Ltd, said Chinese state-owned enterprises usually make long-term investments and acquire the capabilities and technologies of their partners. Dongfeng is unlikely to use the merger plan of Peugeot Citroen and Fiat Chrysler as an exit plan.
Russo said China's state-owned enterprises need capability channels from foreign partners to remain competitive in the market. China's state-owned enterprises usually lack complex vehicle and system technology integration skills.
As part of a deal in 2014, Dongfeng acquired a 12% stake in Peugeot Citroen, which allows the beleaguered Peugeot Citroen to better enter the Chinese market, which is currently worth about $3 billion. After the merger of Peugeot Citroen and Fiat Chrysler, Dongfeng Motor may own about 6% of the new company.