PSA seeks to avoid state aid to keep FCA merger on track

PARIS — PSA Group hopes to avoid tapping French government loans, which could complicate its pending merger with Fiat Chrysler Automobiles, the automaker said. 

PSA said 90 percent of its employees were on furlough or partial unemployment plans, which in France for instance are government-funded, but has so far not resorted to other forms of state aid.

"We want the company to be as free as possible of public dependence," CFO Philippe de Rovira told analysts on Tuesday, adding that PSA had not asked for any government-guaranteed loans.

PSA also said it had not yet made a decision on whether to pay a 1.1 billion euro ($1.2 billion) ordinary dividend on 2019 earnings.

A number of other automakers, including Renault and Ford, have said they will not be paying dividends as they burn through cash with dealerships and factories idled because of the coronavirus crisis.

The French government has urged companies looking to tap state support to scrap or moderate dividend payments. The government holds around 12 percent of PSA Group shares, as well as 15 percent of Renault shares.

For PSA, any changes to planned payouts could also complicate the merger with FCA, which entailed dividend arrangements that would have to be re-approved by both firms in the event they are canceled. FCA is to pay a similar 1.1-billion-euro ($1.2 billion) dividend on 2019 earnings as well as a one-time 5.5-billion-euro ($6 billion) dividend to its investors.

But FCA would need to cut its ordinary dividend if it decides to pursue state aid from Italy. An emergency government decree says companies looking to apply for Italy-backed loans must refrain from approving dividend payments for a year.

PSA CEO Carlos Tavares said recently that the automakers were accelerating work to reach a closing on the merger, which will most likely be completed by next spring. The merger would create the world’s fourth-largest automobile company based on 2019 volumes.
 
PSA made no comment on progress with the merger on Tuesday. Its next shareholder meeting has been postponed to the end of June.

During the 2008 financial crisis, PSA and Renault both accepted French government-backed loans of 3 billion euros each – with the stipulation that jobs be protected while the loans were outstanding. 

PSA said Tuesday that first quarter sales fell by 16 percent in the first quarter to 15.2 billion euros ($16.3 billion), with European coronavirus lockdowns affecting only the final few weeks.

Reuters contributed to this report