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Fiat set on Expansion through Peugeot?

Fiat S.p.A., CEO Sergio Marchionne, seems set on turning his company into a global auto empire and with the recent rejection of his bid for Opel, the Italian company may look to France’s Peugeot as a potential merger partner.

After supplier Magna International reached a preliminary agreement with GM to buy its Opel brand, some analysts see PSA Peugeot Citroen as the best back-up option. Marchionne is looking to expand its scale and create an automotive giant. His plans include the agreement to take an initial 20 percent stake in Chrysler, which is set to come out of bankruptcy as soon as Friday.

On Friday, Marchionne said the deal with Chrysler was Fiat’s main focus and ruled out teaming up with Opel’s new owner, Magna. He insisted that even without Opel, life would “go on,” possibly hinting at a plan to look for another European automaker to buy or merge with.

“Marchionne’s expansion strategy is risky, and Chrysler is the weakest part,” Metzler Equities’ analyst Jürgen Pieper said. “The whole thing including Opel would have made some sense. If the Opel bid fails the whole thing is too weak and too risky.”

Marchionne previously said that he wants to boost his companies output to over 5 million vehicles annually. A deal with Opel would have come close to that target, but a deal with Peugeot would boost the company above the 5-million mark and create Europe’s largest automaker as well.

“You would probably get to run about 7 million units,” said an analyst with Credit Suisse, Arndt Ellinghorst. “The scale argument would be even stronger in a Peugeot tie-up in whatever form versus a GM Europe [tie-up].”

“It makes sense. Some people are saying [Fiat’s effort with] Opel is a type of smokescreen to attract media attention so they can negotiate behind the scenes with Peugeot,” said Eric-Alain Michelis, an analyst at SG Securities.

Although Fiat S.p.A. and PSA Peugeot Citroen already have commercial ties through a 20-year-old cooperation agreement for light vehicles, the French company has said it would like to remain on its own. Analysts say that if Fiat were to try for a deal with Peugeot, it would have to shell out money it does not have.

Source: Automotive News

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