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Investors Relieved Peugeot Won’t Buy Mitsubishi Stake

Fiat Emerges As Next Candidate, Dies, Then Returns Again
Companies Pledge To Build On Project Collaboration

News that Peugeot-Citroen and Mitsubishi had abandoned plans for a merger was overwhelmed by other news generated at the Geneva Car Show.

But nevertheless, if you listened closely enough, you could hear investors breathing a sigh of relief.

Remember that this mooted merger was justified by the less than compelling reasoning that there was no other alternative.

“Unlike the tie-up of Volkswagen and Suzuki, a possible capital alliance between PSA Peugeot Citroen and Mitsubishi never looked such a blessed union. Mitsubishi did not fill Peugeot’s strategic gaps. There were questions over how Peugeot would fund a Mitsubishi stake. And there was the snag of the hefty valuation gap,” said the Financial Times Lex column.

Peugeot had been expected to buy a 30 to 50 per cent stake in Mitsubishi for up to €2.5 billion.

But the question marks over Peugeot-Citroens future haven’t gone away. It remains dangerously over-exposed to Europe, with more than 70 per cent of its sales in this weak and over supplied market.

So it didn’t take long for the rumour mill to start again, with Fiat-Chrysler emerging as the favoured merger candidate, to be shot down almost as quickly.

“Any suggestion of a tie-up with Fiat Auto seems unlikely, with Fiat Auto not offering the global presence PSA would be looking for in an alliance partner and given potential difficulties in closing capacity,” said Citigroup Global Markets analyst Philip Watkins.

After the news the two companies were talking merger broke late in 2009, Mitsubishi was said to be weak in Europe but looked attractive to Peugeot because of its strong Asian presence and toehold in the U.S. market. Mitsubishi already makes cars for Peugeot – the Peugeot 4007 SUV and the Citroen C-Crosser are Mitsubishi Outlanders in disguise. Mitsubishi was ahead of the battery powered car game, already selling the iMiEV. The upcoming 2010 battery cars the Peugeot iOn and Citroen C-Zero are iMiEVs with different badges.

Big Fiat synergies 
UBS argues though that a Fiat tie-up would be worth examining because the Italian’s merger with Chrysler is too small and unbalanced. According to the FT’s Lex, quoting UBS, a Fiat merger with Peugeot could produce €4 billion worth of cumulative synergies over five years, almost twice the savings from a full Chrysler merger.

“As well as agreement from the Agnelli and Peugeot families, however, such a tie-up would require political will to countenance capacity reductions, notably absent so far in Europe’s response to the auto industry crisis,” Lex said.

Peugeot-Citroen CEO Philippe Varin and Mitsubishi President Osamu Masuko said in a statement at the Geneva car show that despite the failure to conclude a capital alliance, operational ties would be expanded.

Neil Winton – March 15, 2010

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