Rationale of the Deal
Fiat Chrysler and Peugeot agreed on an all-stock cross border merger that will create the world’s 4 largest automaker. Fiat had the upper hand in the negotiations as Peugeot needed the merger more than the Italo-american automaker. The French group needs to boost scale as a hedge against a reliance on EU sales and the pressure to comply with emission rules that can carry on hefty fines. For Fiat, this deal represents an opportunity to add electric vehicles (EVs) to its fleet as this segment is set to grow exponentially in the coming years.
90% Chances of approval
The companies are likely to get the EU antitrust approval after the submission of remedies, although they still may need to beef up the remedy package. According to the European Commission, the companies’ overlap in light commercial vehicles (vans) raised anticompetitive concerns. This segment was important before the pandemic and it became even more important after a recent surge in demand for home-deliveries. Overlaps in small cars and SUVs didn’t raise any concern despite high combined market shares in some European countries.
Automakers to Avoid Divestitures
Fiat and Peugeot are offering to deepen its current agreement with Toyota to produce more vans for the Japanese firm in order to avoid selling one of their factories in France or Spain. While this type of behavioural remedies wouldn’t have been enough pre-Covid19 to address a horizontal overlap in a heavy industry, regulators this time may be poised to accept it given the uncertain outlook that automakers face in the coming years. Yet, if regulators were to accept a remedy plan without including a divestiture, they may request the parties to offer other commitments.
Deadline Suspended, Decision Likely in 1Q21
The companies may need to wait until early next year to get an approval. The statutory deadline is currently suspended since July until the parties submit the data requested. After more than two months suspended, the new deadline would probably be pushed back to January. Additionally, the proposed remedy could extend the deadline 15 working days, moving the final deadline probably to February. There is still a chance that the companies get an approval by year-end as regulators have enough time to test the remedies in the market and reach a decision but this seems unlikely.
