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Fiat says board not reviewing car merger plan

Fiat SpA's board is not considering a plan to merge with another car maker, the Italian industrial group said on Friday, following a news report that Fiat was eyeing a deal with PSA Peugeot-Citroen.

Early in the day, Italy's Il Sole 24 Ore said a strategy consultant and Italian investment bank Mediobanca had drawn up a plan to merge Fiat's car business with PSA.

Without citing its sources, the newspaper said Fiat Chief Executive Sergio Marchionne had yet to decide if or when to present the plan to the board.

Fiat later said its board was not reviewing any merger plan, but reiterated its interest in collaborating with other car makers to cut costs and enter new markets.

“No proposal for a merger with another automotive group is currently under consideration,” read a statement. “It is a known fact that... Fiat frequently examines opportunities for agreements of various types which would offer it operational synergies and access to new markets.”

A PSA spokesman declined comment, but reiterated recent comments made by a PSA executive about the moment not being right to talk about mergers as management focused on dealing with the market downturn.

Morgan Stanley analyst Adam Jonas said the only justification for a merger between the two car makers would be to cut costs, production capacity and headcount dramatically.

“That is the logic and that logic is diametrically opposed to the political agenda in Europe right now,” he said, referring to government efforts to prevent massive job losses in the industry. “So we apply a low probability to this.”

A Paris analyst said consolidation in the industry would take years to occur.

“There are rumors every day but nothing will happen during the crisis,” he said. “Automakers are facing a major crisis and their only concern is managing their cash.”

In the news report, Il Sole 24 Ore said the plan would have PSA rather than Fiat cut jobs at its factories in exchange for having the head offices of the merged company based in Paris. Marchionne would be chief executive, it said.

Although the financial details were top secret, the most probable option would be to have Fiat merge its car business with PSA, it said.

The idea of a merger between the two car makers has often been postulated in newspapers and analyst reports, especially after Marchionne said in December that some automakers would have to consolidate to survive the global economic crisis.

True to his word, Marchionne announced early this year an agreement to form an alliance between Fiat and Chrysler LLC, the completion of which is contingent on the struggling US car maker getting US government loans.

Friday's publication of the latest figures showing a 18.3% drop in February new car sales in Europe was the latest reminder of the toll that the crisis was taking on the industry. (Reuters)