Fiat Chrysler and Peugeot Shareholders Vote to Merge
We think the market has valued Stellantis as though fundamentals will only deteriorate from historic levels.
No-moat rated Fiat Chrysler (FCAU) and PSA Peugeot Citroen (UG) announced Jan. 4 that the shareholders of each company voted in special meetings to approve their merger into Stellantis. The companies expect the merger to close on Saturday, Jan. 16, with Stellantis shares trading in Europe on Monday, Jan. 18 and on the New York Stock Exchange on Tuesday, Jan. 19. In our view, the market has discounted the shares of both companies on concerns over high spending for vehicle electrification, management’s ability to deliver on its cost savings target, and Fiat Chrysler debt, which has increased to EUR 26.4 billion at the end of the third quarter 2020 from EUR 12.9 billion at year-end 2019 due to COVID-19. We think the market has valued Stellantis as though fundamentals will only deteriorate from historic levels.
Shares of 5-star rated Fiat Chrysler currently trade at a compelling 49% discount to our EUR 29 fair value estimate while 4-star rated Peugeot's shares trade at an attractive 29% discount to our EUR 32 fair value estimate. After merger adjustments including higher debt and cash, plus a EUR 2.9 billion Fiat Chrysler special dividend, the spin-off of Faurecia to Stellantis shareholders, and all share-count adjustments, the market currently values Stellantis at roughly EUR 13, representing a 29% discount to our EUR 18 Stellantis fair value estimate.
We believe the economies-of-scale of Stellantis are too compelling for investors to ignore. Even so, our fair value estimate does not yet include EUR 5.0 billion in targeted annualized cost savings, 80% of which is expected to be realized in the fourth year following the merger. Regionally, Peugeot is strong in France with a solid presence in Germany and the U.K. through the Opel-Vauxhall brands, plus Argentina, while Fiat Chrysler has strength in Italy, North America, and Brazil.
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Richard Hilgert does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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