Send me real-time posts from this site at my email
Motley Fool

Why Fiat Chrysler's Stock Surged Today

What happened

Shares of Fiat Chrysler Automobiles (NYSE: FCAU) were trading higher on Tuesday afternoon. FCA and French automaker Peugeot (OTC: PUGOY) said in a joint statement that they have agreed to revise the terms of their merger agreement, which will create the world's fourth-largest automaker when it closes next spring.

As of 3 p.m. EDT on Tuesday, FCA's shares were up about 7.9% from Monday's closing price.

So what

FCA and Peugeot announced that they had agreed to some changes to their plan to merge into a new global automaker called Stellantis. The most significant change was to a provision to pay out 5.5 billion euros ($6.5 million) in a special dividend to FCA shareholders before the merger closes. That payout has been reduced to 2.9 billion euros; in exchange, Peugeot will distribute its 46% stake in auto supplier Faurecia to all shareholders of the new company once the deal closes.

This sign will change again next spring, when FCA and Peugeot merge to form Stellantis. Image source: Fiat Chrysler Automobiles.

Peugeot had contended that given the industry's difficulties amid the COVID-19 pandemic, the 5.5 billion euro special-dividend payment was too large. That in turn had raised concerns among auto investors as to whether the merger deal was at risk

With today's agreement, those concerns have now been allayed. That's why FCA's stock was up today.

Now what

Perhaps as a consolation for the cut to FCA's special dividend, both companies' boards of directors will consider an additional special dividend to be paid to all shareholders of the combined company, the two said. That payout could be as much as 1 billion euros.

With Peugeot's concerns resolved in a way that doesn't hurt FCA shareholders too badly, the deal appears to be on course to close by the end of the first quarter of 2021, as planned. FCA shareholders won't be thrilled to have lost some of the promised dividend, but on balance, it's good news.

10 stocks we like better than Fiat Chrysler Automobiles
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Fiat Chrysler Automobiles wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of August 1, 2020

John Rosevear has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


Source

Popular posts

Welcome! Is it your First time here?

What are you looking for? Select your points of interest to improve your first-time experience:

Apply & Continue