The last couple of days rumours of a merger between Fiat Chrysler and PSA (parent company of Peugeot) came true this morning with the two carmakers announcing a board agreement to combine the two groups. The combined entity is expected to get €3.7bn in cost synergies and the combined group will complement each other globally in terms of geography and brands. Fiat Chrysler shareholders will receive a special dividend of €5.5bn as part of the deal. The two groups will each own 50% of the new combined entity. As competition is heating up in the global car industry with large new Chinese carmakers and an expensive transition to electric vehicles the merger might turn out to be the right thing.
Adding to the positive sentiment in US equities pushing the key indices into new all-time highs was positive reactions to the Facebook and Apple earnings releases. Facebook delivered strong revenue growth of 29% y/y and EPS growth of 21% y/y both beating expectations. Simultaneously with Facebook reporting earnings Twitter announced that they are banning political ads globally on their platform putting pressure on Facebook to make similar move or at least tighten the control more. The potential canary in the coalmine for investors in Facebook was the EBITDA margin declining to 48.7% the lowest level since Q1 2016.
Apple’s earnings were a story of revenue and EPS beating estimates but also a story of iPhone revenue down 9% y/y and iMac revenue down 5% y/y but importantly offset by Services (app store sales etc.) and Wearables etc. The most positive thing in the earnings release was the flat revenue growth in the Greater China segment which indicates that Chinese consumers are not completely abandoning Apple’s products.