- Fiat Chrysler Automobiles N.V. (FCA) and Peugeot S.A. (PSA) announced their intention to merge their respective businesses.
- S&P Global Ratings believes that the combined group could benefit from its increased scale, improved business diversity, and relatively low leverage post-closing, but that synergies would take time, involve meaningful implementation costs, and entail execution risk.
- We are placing our ratings on FCA, including our ‘BB+’ issuer credit rating on the company, on CreditWatch with positive implications.
- We plan to resolve the CreditWatch placement once the transaction closes.
S&P Global Ratings today took the rating actions listed above.
The CreditWatch placement reflects our view of increased rating upside resulting for FCA because we believe that the combined group could benefit from its increased scale, improved business diversity, and relatively low leverage post-closing, judging by the proposed transaction’s preliminary outline. This is despite the proposed dividend payout of €5.5 billion ahead of the merger. At the same time, we expect that meaningful synergies will take time, involve meaningful implementation costs, and entail some execution risk, given potential political resistance when it comes to cost rationalization efforts.
We will monitor developments related to the merger. We will resolve the CreditWatch placement once there is certainty that the transaction closes and after we have discussed with management the combined entity’s strategy, investment, and restructuring plans, along with its financial policy. We could raise the rating one notch to ‘BBB-‘, in line with the rating we have on PSA, provided we expect FOCF-to-sales of more than 2%. We could affirm the rating at ‘BB+’ if more difficult industry conditions led to a decline in profitability, or synergies happen slower, resulting in FOCF generation of the combined group being significantly lower than in our base-case scenario.
SOURCE: S&P
