MILAN (Reuters) - The reasons for Fiat Chrysler (MI:FCHA) and Peugeot-owner PSA's (PA:PEUP) merger are "stronger than ever," the FCA chairman said on Wednesday, as the COVID-19 pandemic adds to the car industry's existing challenges.
Addressing shareholders in Exor (MI:EXOR), the Agnelli family's holding company, John Elkann, who is also Exor chairman and CEO, said preparatory work for the 50-50 merger was proceeding "on time and as envisaged."
FCA and PSA have agreed a tie-up to create the world's fourth largest carmaker in a deal expected to close in the first quarter of next year.
Elkann said: "the strategic logic of this combination for the two companies and all their employees, is stronger than ever."
FCA has faced criticism in Italy over a 5.5 billion euro special dividend to shareholders as part of its tie-up with PSA, when its local business is in talks with Rome over a 6.3 billion euro state-backed loan to cope with the COVID-19 crisis.
The possible payment of such a large dividend when the coronavirus crisis has left cash-starved manufacturers pushing for government support has been questioned within Italy's ruling coalition.
But the dividend - to be paid by parent company Fiat Chrysler Automobiles NV in the Netherlands - is a central part of the overall value of the 50-50 merger and some analysts say the deal could still unravel if different conditions were imposed.
Italy, however, could look into FCA's 5.5 special payout, a senior government source has said.
Treasury undersecretary Pier Paolo Baretta on Wednesday told Reuters that Rome might consider extending a ban on dividend payments for companies accessing state guarantee from an existing deadline of December 31, 2020 to a 12-month period following the loan guarantee concession.
"That would be reasonable. Doing more may hit the companies' value," Baretta said.
FCA declined to comment.
This could potentially complicate FCA's plans, as the special dividend payment is due just before the closing of the merger with PSA.
Fidentiis analyst Marco Opipari said that if the government imposed conditions, the FCA could decide to change its strategy on liquidity requests.
"FCA could also waive the state guarantee on the new credit line and could probably also reduce the amount of the new credit line, given that the group had the liquidity," he said.
Opipari said it was anyway "reasonable" that FCA would reduce its extraordinary dividend given the current crisis scenario.
"FCA's extraordinary dividend could be reduced to 2.4 billion euros," he said, adding that such a move should be counterbalanced by a PSA's decision to give up a planned spin-off of its controlling stake in French parts maker Faurecia (PA:EPED).