PSA Group, maker of Peugeot automobiles, and Fiat Chrysler have agreed to combine in a deal that will create the world’s fourth-biggest auto manufacturer.

The French and Italo-American carmakers signed a binding accord for a 50-50 merger of their businesses, they said Wednesday. The combined company will be led by PSA Chief Executive Officer Carlos Tavares, with Fiat Chairman John Elkann holding the same role at the enlarged firm.

The merger would forge a regional powerhouse to rival Germany’s Volkswagen and have a stock-market value of about $46 billion, surpassing Ford Motor. The tie-up also brings together two automotive dynasties — the billionaire Agnelli clan of Italy, led by Elkann, and the Peugeots of France.

The deal will give PSA a long-sought presence in North America and should help Fiat gain ground in developing low-emission technology, where it’s lagged rivals. Yet the company will still be heavily reliant on Europe’s saturated auto market, and poorly positioned in China, the world’s largest country for car sales.

Like executives across the industry, Tavares and Elkann are responding to growing pressure to pool resources for product development, manufacturing and purchasing in the face of trade wars and an expensive shift toward electric and self-driving technology.

“The challenges of our industry are really, really significant,” Tavares told reporters on a call Wednesday. “The green deal, autonomous vehicles, connectivity and all those topics need significant resources, strengths, skills and expertise.”

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The companies say that by combining operations they expect to save about $4.1 billion per year in expenses without closing any plants, an estimate that is unchanged from the target they announced when they revealed their merger discussions six weeks ago.

The challenges will be manifold, from improving Fiat’s struggling European operations to meeting tough new rules on emissions that kick in next year in Europe. Tavares, known as a hard-nosed cost-cutter, will also have to navigate the political crosscurrents in France, Italy and the U.S., where the automakers have deep national roots.

Yet he has tackled tough jobs before. Tavares led the French carmaker back from the brink after taking over in 2014, and revived the unprofitable Opel brand after acquiring it from GM two years ago.

China’s Dongfeng Motor, which owns 12% of PSA, will see its stake in the combined company decline to 4.5% as a result of the merger and the sale of a portion of its holding to the French carmaker.

Dongfeng’s stake in PSA has attracted attention because of the possibility it could interfere with U.S. regulatory approval for the deal. U.S. economic adviser Larry Kudlow said last month that the Trump administration would review the proposed merger because the deal would give the Chinese automaker a stake in the combined company.

Tavares, on the call, said the companies don’t expect any significant problems from the antitrust regulators.

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Fiat CEO Mike Manley, on the call, dismissed concerns over legal and tax issues that arose in recent weeks. General Motors in November accused Fiat Chrysler of bribing a union in the U.S. for more favorable terms. Manley called the allegation meritless.

Separately, Italian tax authorities have claimed that Fiat owes the government a hefty sum after underestimating Chrysler’s value following its purchase several years ago. Manley reiterated that the case would have no material impact, and said both issues were reviewed during due diligence with PSA.

Before the closing of the deal, Fiat will distribute to its shareholders a special dividend of $6.1 billion, while PSA will distribute its 46% stake in car-parts maker Faurecia to its own investors.

The spinoff or sale of Fiat’s robotics arm Comau for the benefit of the Italian company’s shareholders has been modified since October. Now, the planned separation will occur after the closing, and shareholders of the combined company will benefit.

Additional details of the deal

  • Fiat holders to have 1:1 share exchange vs. 1.742:1 for PSA investors
  •  PSA, Fiat say they expect deal completion within 12-15 months
  •  PSA, Fiat each to distribute $1.2 billion dividend in 2020
  • The companies will build most of their cars on two common platforms

 

Bloomberg’s Gabrielle Coppola contributed to this report.