Fiat
A FCA (Fiat Chrysler Automobiles) logo is displayed on March 6, 2019 during a press day ahead of the Geneva International Motor Show in Geneva. HAROLD CUNNINGHAM/AFP/Getty Images

Merger bells seem to be ringing for Fiat Chrysler with Peugeot (Groupe PSA) evincing interest. The resulting cheer in the stock market pushed up both stocks immensely on Tuesday.

The trigger for the merger came from the comments of Peugeot family holding company FFP’s chief Robert Peugeot. He told French media that the group is all for a new deal and considered Fiat Chrysler as an ideal candidate.

The Peugeot family is a big shareholder in the PSA Group comprising Citroën, DS, Peugeot, and Vauxhall-Opel.

Robert Peugeot’s remarks supplemented the comments made by PSA Group CEO Carlos Tavares that he is open to deals and prefer Fiat, General Motors, and Jaguar Land Rover as ideal partners. But Fiat Chrysler (FCA) refused to comment.

Shares up

The merger buzz pushed up Fiat Chrysler shares on Tuesday. It jumped to the top of Europe’s STOXX 600. The shares of Italian-American carmaker zoomed 5.2 percent by 1050 GMT, while Peugeot’s shares also jumped 2.7 percent, boosting the auto index by 2.5 percent.

The PSA Group has also shown interest in Jaguar Land Rover, owned by India’s Tata group.

Robert Peugeot said no deals are currently in place. But he is tempted by the “exceptional success” of PSA’s 2016 takeover of Vauxhall-Opel from GM and the family will be keen to back a similar move.

FCA boss Mike Manley stated that the carmaker is open to partnership and mergers if they can strengthen its future.

Strategic interest in FCA

As PSA is preparing to re-launch Peugeot in the USA, it hopes a deal with FCA would work well and access to its infrastructure for servicing and dealership will come handy.

Analyst Arndt Ellinghorst with Evercore ISI said PSA is essentially an EU pure-play company with 90 percent of consolidated unit sales in EU. That is why the acquisition of a company with a broader-reach makes strategic sense for it.

FCA’s pull as a merger candidate comes from its strong exposure to the North American market, from where the bulk of its profits comes. The FCA is quite popular for its Jeep, RAM and Maserati brands.

PSA maintains a long term interest in FCA. However, CEO Tavares dithered a move in 2015 to focus more on the Vauxhall-Opel deal.

The two companies have a history of closer collaboration in the development of commercial vehicles.

However, analysts feel an imminent deal is unlikely as antitrust obstacles can hamstring any move.

“Although we believe that some M&A could materialize in the automotive sector, we do not expect it in the short term,” noted analyst Andrea Balloni attached to Mediobanca Securities.

Meanwhile, automotive and smart vehicle patents contributed more to the rising number of patents filed in Europe in 2018.