AutoBeta(AutoBeta.net)04/27 Report--

For 2019, the merger of Peugeot Citroen (hereinafter referred to as PSA) and Fiat Chrysler (hereinafter referred to as FCA) is undoubtedly a major event in the industry, after all, the merger of the two auto groups will become the third largest auto group in the world. However, due to a variety of adverse factors, the merger plans of the two groups have been shelved and have not yet been realized, including the reason why Dongfeng Motor occupies an important role.

In October, PSA and FCA announced that they would merge fully with a 50:50 stake to expand and cope with costly investment in new technologies and slowing market demand. And in the merger agreement signed in December of the same year, the two sides will complete the merger within 12-15 months. If the merger is formally completed, it will become the fourth largest auto group in the world by sales and third by revenue, after Volkswagen and Toyota.

However, due to the attack of the global economic market by COVID-19 's epidemic in 2020, the share price of PSA fell from 22 euros at the end of 2019 to the current (closing price on April 27) of 12.39 euros. Dongfeng Motor, as the largest shareholder of PSA Group, is the same as the French government and the Peugeot family, with Dongfeng Motor accounting for 12.23% of the shares. Therefore, if we want to merge the two major automobile groups, Dongfeng Motor must pass.

However, when the two major automobile groups merge, Dongfeng Motor Group's shareholding will be reduced to 9.14%, that is, Dongfeng Motor needs to sell 30.7 million shares to PSA, which also means that Dongfeng Motor can only make a profit of 380 million euros (about 2.916 billion yuan) at the current share price, such as according to the previous share price. Dongfeng Motor will also receive compensation of about 679 million euros (5.267 billion yuan), which means it is now nearly halved. Therefore, whether Dongfeng Motor chooses to reduce its stock holdings will always affect the merger plans of the two major automobile groups.

Let's just say everyone thinks that Dongfeng Motor will not choose to sell its shares. Shares of Peugeot Citroen have fallen more than 50 percent due to novel coronavirus's epidemic, and Dongfeng is discussing with Peugeot Citroen to revise its original plan to reduce its stake in Peugeot Citroen, Reuters reported on April 2.

But today, Dongfeng announced that it had obtained shareholders' written approval from major shareholder DFM on April 27th, 2020, with regard to its previous commitment to approve the merger of Peugeot Citroen and Fiat Chrysler. The company decided to use the shareholder's written approval in lieu of holding an on-site shareholders' meeting to approve the DFG/DMHK commitment to the merger of PSA and FCA; and the PSA share repurchase agreement in accordance with Rule 14.44 of the listing rules.

Although Dongfeng Group's share ratio in PSA has dropped to 9 per cent, it will still hold 4.5 per cent of the combined PSA+FCA Group, still the third largest shareholder, while retaining two supervisory board seats and observer seats, including vice-chairman seats on the supervisory board.

Why Dongfeng Group is still willing to reduce its holdings is a concern about the performance of PSA Group and domestic joint ventures. Due to the impact of COVID-19, so that the not-so-excellent Hubei DPCA has become even worse. According to the data, PSA Group sold only 35900 new cars in China and Southeast Asia in the first quarter, down 78.2% from the same period last year, making it the largest decline in all regions. And the group as a whole fell by 29% in 2019.

Although unaffected by the epidemic, PSA Group's cumulative sales in China and Southeast Asia in 2019 were only 1.17 million vehicles, down 55.4% from the same period last year. As a result, PSA suffered losses and writedowns of 700 million euros (5.4 billion yuan) in China. Therefore, instead of facing persistent losses, we should use the money to develop our own brands after the sale of PSA shares, according to you Zheng, deputy general manager of Dongfeng Motor Group.

Obviously, after the huge decline of French brands in the Chinese market in recent years, Dongfeng Motor's holding of PSA Group has not brought much profit, after all, the performance of PSA Group in China in recent years is obvious. Not long ago, Renault of Dongfeng Group also chose to withdraw its fuel models from the Chinese market, which shows that French models are still "unlucky" in China.

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