At what price can the synergy promises of Stellantis be fulfilled?


 M&A stories are a bit like love stories, they are much more beautiful and easy to tell before they happen. The sequel lasts longer, takes place farther away from view, keeps some promises and leads to forgetting others. Thus, in the wedding basket of groom Stellantis, there is, we are assured, 5 billion euros a year of synergy that constitutes the fundamental justification for the union. As soon as one worries about how these billions will be found, history inevitably changes its nature. The pink novel is a little less so. We are there as early as 2021, and the following ones have little chance of allowing us to rediscover the romance that was only sung to us until yesterday.


The General Assembly held last Monday, did not, as was to be expected, hold any surprises. The only uncertainties had basically occurred during the summer when it was a question of readjusting, in view of the financial results of the first half of the year, the initial plan according to the respective trajectories of the two groups in the face of the Covid crisis. Despite the profit that the French side could then have drawn from it to readjust the deal a little more clearly in its favour, it was the reaffirmed willingness to go through with the operation by only marginally readjusting the terms that had prevailed so much that both parties wanted the merger to go ahead.
From this point of view, what we heard yesterday is only the epilogue of a story that was largely written a year ago and which was only marginally adjusted during the summer, which essentially testified to the willingness of the two companies and their shareholders to go through with the transaction by continuing to present it as a merger between equals.
This clear willingness on both sides is understandable in an industry where volumes and global footprint matter so much: Both companies are in fairly good financial health, one because it is doing very well in Europe, the other because it has benefited fully from the support of the Trump administration to consider the Paris agreements as inapplicable and to allow American manufacturers to continue selling monstrous light trucks and SUVs that are as lucrative as they are ecologically problematic; on the other hand neither have the size nor the global footprint that their major challengers have, and in the automotive marriage market, opportunities had become rarer than ever. Managers and shareholders were aware of this and, as Carlos Tavares pointed out, the Italian, American and French trade union organisations also accepted this argument.
From then on, the question became a matter for lawyers, bankers, auditors and, all the same, for negotiations on the management structure. From this point of view, everyone was right to underline the fragility of the governance of entities resulting from "mergers between equals" but, from the outset and even more clearly after the summer, it appeared that the shareholders of FCA, with Elkann in the lead, intended to give Carlos Tavares, if not "full powers" at least a leadership which, as long as he was the boss, would de facto tip the balance in favour of PSA.
Having said that, we could easily consider that the soap opera is over and that yesterday was the happy ending. It is obviously a completely opposite reading that we must develop: as beautiful or "well born" as the baby may be, it is the quality of the care he will be surrounded by and the capacity of the environment that we will be able to structure around him so that he develops that will make him a top performer or an end of the race. The 12,500 pages that the teams who did the midwife's work had to produce to close the deal will be nothing if the teams don't manage to collaborate, to agree on the choices and compromises and in fine to respect each other to develop technologies, vehicles and brands, in Europe, North America and elsewhere in the world.


Carlos Tavares will be the guarantor of this and the fact that he underlines the respective capacities of the two companies to "execute their plan", as well as the fact that he has basically been able to have full powers at PSA for the last 6 years, with the unfailing support of Louis Gallois, leaves a doubt on his capacity to lead a much more "political" and complex operation where it will be necessary, to leave time to time and to know how to compose and find compromises.

 For example, with regard to the 5 billion euros of annual synergy promised, it will be a question of determining whether and how they will be found year after year. What staff will be sacrificed in factories, R&D centres, sales teams? If, as is generally the case, we start with purchasing, who will remain on the panel? Who will be left and with what consequences for the Italian, French or German industrial fabric?

These questions are already the subject of work between the different parties, but the trade unions or the public authorities which, in the Italian case for example, supported Fiat have not yet been included in the discussions. For the time being, the doctrine is still that no factory will be closed and that none of the 14 brands is destined to disappear, but who can believe it? 
The history of mergers and acquisitions and, a fortiori, that of mergers between equals, is punctuated by "failure stories" and vertiginous discrepancies between the promises of value and those observed. The projects and agreements that are promoted to analysts and the business press and voted on by the board of directors are about as realistic as a copy of an MBA or a business case from Sup de Co. Chrysler's teams have experienced this with Daimler. PSA alumni also know that Citroën and Peugeot have only recently become PSAs. 
Carlos Tavares, more Bonaparte than Mazarin and more at ease in the Blitzkriegs than in the Hundred Years Wars will have to change dimension here. He will have to broaden his range and attract a heterogeneous and challenging team. The "car guy" will have to change dimension.   



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