Fiat Chrysler/Peugeot deal in spotlight after Exor setbacks

By Giulio Piovaccari

MILAN (Reuters) – Fiat Chrysler’s decision to scrap its dividend marks another setback for plans by the Agnelli family’s Exor arm to raise cash after a $9 billion sale of its reinsurer unit PartnerRe collapsed this week.

Fiat Chrysler (FCA) and French Peugeot owner PSA , which have agreed a tie-up to create the world’s fourth largest carmaker, said late on Wednesday they were both withdrawing their annual dividend. That will allow them each to preserve 1.1 billion euros ($1.2 billion) in cash during the coronavirus crisis.

Exor, led by Agnelli scion John Elkann and FCA’s controlling shareholder with a 28.9% stake, will miss out on around 320 million euros in cash at a time when two deals to reshape its portfolio of businesses have either been scrapped or delayed.

The coronavirus crisis had already forced vehicle and equipment maker CNH Industrial , also controlled by Exor, to delay to late 2021 “or beyond” a plan to split in two and list its truck, bus and engine business, which was initially due to be completed by early next year.

All eyes are now on the $50 billion FCA-PSA merger.

The two automakers said on Wednesday that preparations for their planned 50-50 merger were “advancing well” and that the closing was expected on schedule, before the end of the first quarter of next year.

The sale of Bermuda-based PartnerRe foundered after Exor resisted attempts by French insurer Covea to drive down the price of the cash deal.

Some saw that as a warning shot to PSA not to try the same tactics with FCA where Elkann is the chairman.

“With its decision not to accept a discount on PartnerRe, Elkann has sent a strong message to PSA and its CEO (Carlos) Tavares,” an investment banker close to the situation, who asked not to be named, told Reuters.

“The message is: don’t expect to come around and get much different conditions on the FCA-PSA merger”.

The decision to scrap payment of ordinary dividends, which had been announced in December as part of the tie-up agreement between the two automakers, did not alter the terms of the deal as both companies took the same step.

Analysts are, however, focusing on a 5.5 billion euro special dividend FCA is set to pay to its investors just before completing the merger.

Intesa Sanpaolo analyst Monica Bosio said she still expected the payment of the special dividend, “which implicitly represents the premium assigned to the group in the deal thanks to its positioning in the U.S. and to its high-value brands such as Jeep, Ram and Maserati”.

Marco Opipari, an analyst at Fidentiis, said the merger was essential to the two group’s long-term competitiveness, especially in the current scenario, but that some terms of the agreement could be rediscussed.

“A Solomonic solution could be to cut FCA’s extraordinary dividend to 3 billion euros,” he said, adding that, as a rebalancing, PSA could ditch the planned spin-off of its controlling stake in parts maker Faurecia .

The COVID-19 spread has hit asset valuations hard and raised questions about the terms of deals struck before the virus swept across the world. Shares in both FCA and PSA are both down around 45% this year.

Exor’s other investments include Ferrari , Italian soccer champions Juventus and weekly magazine the Economist.

(Reporting by Giulio Piovaccari; Editing by Keith Weir and Jane Merriman)