By Jessica Sier 

Fiat Chrysler Automobiles NV's Chairman John Elkann says merger plans with Peugeot SA are proceeding as envisaged, despite concerns the Italian government may impose dividend restrictions on its coronavirus-related loan package, and the deal's rationale is "stronger than ever."

"All the workstreams for the 50-50 merger project we announced between FCA and PSA, to create one of the world's leading automotive groups, are proceeding on time and as envisaged," said Mr. Elkann in a speech to the shareholders of Exor NV on Wednesday, where he is also Chief Executive of the Italian holding company belonging to the Agnelli family.

"The strategic logic of this combination for the two companies and all their employees, is stronger than ever."

Exor is the largest shareholder in Fiat Chrysler.

The comments come as Fiat Chrysler negotiates a 6.3 billion euro ($6.89 billion) credit line from the Italian government to shore up cash flow during the economic uncertainty posed by the coronavirus spread.

However, analysts speculate the state-backed loan may force the amendment of a EUR5.5 billion special dividend Fiat Chrysler agreed to pay shareholders at the close of the deal in either the first or second quarter of 2021.

"Exor stands to independently gain around EUR1 billion in special and ordinary dividend payments from the deal," said Tom Narayan, auto analyst at RBC Capital Markets.

"Any changes to the dividend could affect the merger agreement, and given Exor owns so much of the company they could have the power to block the deal."

Exor has an existing 28.9% stake in Fiat Chrysler with 42.5% voting rights, according to Exor's most recent annual report.

The Netherlands-based holding company will become the largest shareholder of the merged entity with around 14% of the capital. The Peugeot family will be the second largest shareholder.

However, there are concerns the Italian government loan program may stipulate companies must not to pay out dividends in 2020 or 2021.

According to Italian daily newspaper ll Messaggero, the state-backed loans may require guarantees of employment levels in Italy, confirmation of capital expenditure plans, as well as postponing dividend payments until the end of 2021.

"While there could be ad hoc changes with regard to the distribution of dividends, we believe there is no problem getting the loan," said Martino De Ambroggi, analyst at Equita Sim.

"We believe that this financing will be used to face the most acute phase of the crisis, but in the case of restrictive conditions we do not rule out that it can be repaid in advance by drawing on other sources of financing."

Shares in Fiat Chrysler have sunk around 45% since just before the merger was announced in December 2019, largely driven by the widespread economic damage caused by the coronavirus spread. Peugeot's stock is down more than 60% since the deal was announced.


Write to Jessica Sier at


(END) Dow Jones Newswires

May 20, 2020 07:55 ET (11:55 GMT)

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