May 28, 2019 / 10:30 AM / a year ago

Breakingviews - Fiat-Renault deal leaves Peugeot in the M&A dust

The logo of French car manufacturer Peugeot is seen on a car at a dealership of the company in Selestat, France, January 14, 2019. REUTERS/Vincent Kessler

LONDON (Reuters Breakingviews) - Picture Carlos Tavares alone on a dance floor watching Fiat Chrysler Automobiles embrace his love rival Renault. The lonesome Peugeot chief executive has a few fallback options, but those pairings lack the chemistry that existed between Tavares and his Italian-American suitor.

Tavares’ 18.4 billion euro auto group approached FCA about a deal earlier this year, the Wall Street Journal reported, while Robert Peugeot of the eponymous family shareholder group said the “planets could be aligned”. Fiat’s strong U.S. presence through Jeep would have boosted Tavares’ ambition to diversify away from slow-growing Europe, which provides most of his sales. The savings from combining purchasing and manufacturing in Europe, meanwhile, would have helped pay for a push into electric vehicles. Instead FCA Chairman John Elkann opted for a merger with Renault, whose alliances with Japan’s Nissan Motor and Mitsubishi Motors bring superior global heft and a head start on electrification.

Tavares’ most obvious backup is Jaguar Land Rover, based in Britain and owned by India’s Tata Motors. Worth 5.8 billion euros including debt, based on Credit Suisse estimates, it made a 180 million pound operating loss (204 million euros) from 24.2 billion pounds of sales in the year to March. Tavares could help by moving production to France to hedge against Brexit, and combining UK sites with his Opel Vauxhall brand. The former loss-making unit Tavares bought in 2017 from General Motors posted a 4.7 percent operating margin last year, confirming his reputation as a turnaround specialist.

Still, that deal would do little to help Tavares’ U.S. ambitions, since almost three-quarters of JLR’s sales come from outside America. And there’s no evidence that Tata is willing to sell its crown jewel. Tavares could perhaps call GM’s Chief Executive Mary Barra instead: the two groups have a complementary set of vehicle models and regions. But a merger is unlikely since $50 billion GM is so much bigger and Barra seems focused on building U.S. robotaxis. At best Tavares might be able use some of GM’s spare capacity for his American push.

Such piecemeal cooperation is anyway world’s away from what he’s missed out on with an FCA merger, which promised 5.6 billion euros of cost savings using a 3% of joint revenue benchmark from the planned Renault deal. Peugeot’s shares are down 2% since Friday’s close; Tavares is left in the M&A dust.


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