PSA and Fiat Chrysler have overhauled the terms of their €50bn merger to preserve more cash within the combined business, to help them weather the global economic impact of the coronavirus pandemic.

An expected dividend to FCA shareholders has been cut from €5.5bn to €2.9bn in order to keep cash inside the new company, which will be called Stellantis.

“Today’s announcement is a further, strong signal of a common determination to ensure that Stellantis has all the resources it needs,” said FCA chief executive Mike Manley.

Late last year the pair struck a deal that will make them the fourth-largest carmaker in the world, overtaking General Motors and Hyundai-Kia, in part to cut out duplication on technology spending.

The companies had been widely expected to change some terms of their deal after the pandemic struck, causing all carmakers to shut plants and leading to a collapse in global car sales.

Analysts had focused on FCA’s proposed €5.5bn dividend, which was intended to equalise the two businesses in size before a 50-50 combination, as a likely element to change from the original merger agreement.

Slashing FCA’s payout alters the ratio of the merger, which PSA will balance out by handing half of its shares in the parts group Faurecia to FCA investors.

PSA owns 46 per cent of Faurecia, which was worth roughly €2.6bn on Monday, and had intended to spin off its portion of the business to its own shareholders. Instead, the shares will be split evenly between FCA and PSA’s investors.

Despite the slowdown, both companies have remained financially stable.

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PSA, which owns Peugeot, reported a €595m profit in the first half of the year, making it almost unique among global carmakers, while FCA scraped a profit in its US heartland during the second quarter.

Depending on the trading conditions of both companies at the end of this year, the two groups may pay an additional €500m to each of their shareholders before the deal closes, which is expected to be in the first quarter of 2021, they said on Monday.

They also raised their expected cost savings from €3.7bn to more than €5bn.

“With this new, decisive milestone, we are moving all together towards our goal in the best possible condition,” said Carlos Tavares, PSA boss who will be the Stellantis chief executive after the merger.

“I would like to take this opportunity to warmly thank the teams who have built reciprocal relations of trust, including during the Covid-19 confinement.”

The merger still faces a competition investigation in Europe, where the two companies may be forced to sell or dispose of parts of their combined van business.

Via Financial Times