Agnelli fortune gains $900 million on FCA-PSA mega merger

Italy's Agnelli family is emerging as the biggest winner from the merger of Fiat Chrysler Automobiles and PSA Group, the latest vindication for the 43-year-old scion, John Elkann, who has overseen the dynasty's revival in the past 15 years.

The clan's stake in FCA shareholder Exor has risen in value by about 800 million euros ($900 million) since deal talks were revealed on Tuesday, according to calculations by Bloomberg. The Agnellis own a controlling position in holding company Exor, Fiat’s largest shareholder.

The Agnellis are worth more than $10 billion, according to the Bloomberg Billionaires Index, making them one of Europe’s wealthiest dynasties. Through Exor they have investments including Ferrari, the Economist magazine, Italian soccer club Juventus and Fiat, which has anchored the family's wealth since it was founded in 1899.

The fortune is spread across dozens of family members who own their stakes through holding company Giovanni Agnelli BV, which controls 53 percent of Exor.

Elkan, the current FCA chairman, is a grandson of Gianni Agnelli, a jet-setter who was known to Italians as "L'Avvocato," or the attorney. Gianni, who died in 2003, took over Fiat from his grandfather after World War 2, helping rebuild the Italian manufacturer and shape Italy's postwar years.

Elkann has recast Exor's portfolio since becoming head of the family in 2004, buying Bermuda-based reinsurer PartnerRe in 2015, its biggest single acquisition in more than a century. Fiat itself was transformed under the tenure of CEO Sergio Marchionne, who died in 2018.

Elkann will be chairman of the merged company, and Exor will be its largest shareholder with about a 14 percent stake.

FCA has extracted a chunky premium in exchange for agreeing what many analysts regard as a takeover by PSA that is being dressed up as a merger. PSA's shareholders are not convinced it's worth it, and it's not hard to see why they are skeptical.

The 11-member board of the combined FCA-PSA will have six members from PSA including CEO Carlos Tavares, who will remain CEO for five years, and five from Fiat Chrysler.

While there is no binding deal yet, the terms have been set to ensure FCA investors take more out of the combination than they put in. The company's market value was already smaller than PSA's going into the tie-up.

The Agnelli family would withdraw about 5.8 billion euros ($6.5 billion), mainly from a special dividend before the automakers come together. That further diminishes FCA's financial contribution to the enlarged group.

For their part, PSA investors will siphon off their company's stake in car parts-maker Faurecia. That's worth only 2.6 billion euros. Deduct the special dividend and Faurecia from FCA's and PSA's respective market values on Tuesday, and FCA's shareholders will contribute about 40 percent of the combined equity in return for a 50 percent stake in the new PSA-FCA. Plus, they will get a half share in the value of any cost savings.

True, FCA was valued closer to PSA when judged on average values over the past three months. On that basis, FCA might deserve some top-up. Still, that alone does not justify the premium.

Why is PSA being so generous? One reason is that this is really a low-premium takeover by the French company.

PSA is getting the balance of power in the boardroom, providing the CEO in Carlos Tavares and nominating five out of 10 other roles.

The other is that PSA's board thinks it really needs this deal and is willing to pay for it.

Strategically, FCA brings the U.S. market and the chance to accelerate the development of electric vehicles. Financially, the cost savings are put at 3.7 billion euros yearly. Taxed, capitalized at FCA's earnings multiple and adjusted for the more than four years that will be needed to achieve them, these savings could be worth about 6 billion euros even after one-off costs. That's 3 billion euros to each side.

For now, the market is taking little on trust. Small wonder. The companies say there will be no plant closures, which puts a lot of pressure on other areas -- suppliers in particular -- to fund the savings. PSA's and FCA's market values have jointly added less than 1 billion euros since talks leaked.

PSA is presumably counting on the support of its three core investors -- the French state, the founding Peugeot family and Dongfeng Motor -- to get a deal through a shareholder vote if one is finally agreed.