Fiat Gains Following Report of Peugeot Merger Project

March 13 (Bloomberg) -- Fiat SpA jumped to a one-month high in Milan trading after the Il Sole 24 Ore newspaper reported that Italy’s biggest carmaker is considering a merger with PSA Peugeot Citroen of France.

Turin-based Fiat rose 7.6 percent, or 33 cents, to 4.66 euros, and was up 3 percent as of 3 p.m. in Milan. Paris- based Peugeot climbed as much as 4.6 percent in the French capital and was later little changed at 15.2 euros.

Fiat Chief Executive Officer Sergio Marchionne is evaluating whether to present the merger plan to the company’s board, according to the newspaper, which didn’t say where it got the information. The Turin-based manufacturer said in a statement today that it regularly looks at opportunities for accords that will open new markets or cut production costs, but hasn’t asked the board to examine any merger transactions.

“On paper it looks attractive, but in reality it would be almost impossible because the social costs of restructuring would be so huge that no government would let it happen,” said Alain Michelis, an analyst at Societe Generale in Paris with a “buy” rating on Peugeot and a “hold” on Fiat. “Peugeot and Fiat themselves couldn’t afford a restructuring either.”

Fiat in January agreed to take a 35 percent stake in Chrysler LLC, the third-biggest U.S. automaker, in exchange for sharing small-car technology. Marchionne has said only about five or six major car manufacturers will survive the recession and has indicated that Fiat is open to a European alliance.

Looking for Partners

Societe Generale’s Michelis said he understands that Peugeot is looking for partners, but that Fiat is “not on the list.” Peugeot Citroen shareholder Christian Peugeot seemed to exclude a combination in an interview with Italian daily Il Giornale, which on March 9 cited him as saying that the company is independent and “wants to stay that way.” The Peugeot family owns 30 percent of stock.

“We can’t comment on rumors on mergers and acquisitions in the car industry,” Peugeot Citroen spokesman Hugues Dufour said today by telephone.

Peugeot CEO Christian Streiff said Feb. 11 he was interested in partners “complementary in products or in geography” rather in than rival European volume manufacturers. “We do not want a lot of restructuring to do,” the Financial Times quoted him as saying. The company confirmed the comments.

Peugeot has a commercial-vehicle partnership with Fiat and also cooperates with Munich-based Bayerische Motoren Werke AG on engines. Streiff has repeatedly declined to comment on reports of talks with the German company.

Jobs Protected

Il Sole said that Mediobanca SpA helped form the plan, according to which Fiat’s production structure would remain unchanged, helping to protect Italian jobs, while the headquarters of the merged company would be in Paris and Marchionne would head the combined group. Mediobanca isn’t aware of any merger plan between Fiat and Peugeot, an official said.

“The rumor of a merger has been around for a long time,” Italian bank Cassa Lombarda said today in a research note, adding that it, too, regards social costs as likely to prove too high to be acceptable. The bank said it is “more realistic that Fiat-PSA are working on alliances for new models or engines to share in mature, and more likely in emerging, markets.”

Fiat, controlled by Italy’s Agnelli family, might swap the Fiat Auto carmaking unit for a stake in Peugeot, UBS AG said in a Dec. 11 research note. Fiat may end up with a stake of as much as 45 percent in the newly merged company, Il Sole reported, citing no one.