A Curious Engagement

Big mergers have proved disappointing lately for such huge European companies as Dunlop Pirelli and British Leyland, but France's second and third biggest auto makers remain undaunted. Last week Peugeot and Citroen announced a kind of corporate engagement. Financial terms and most other aspects of the proposed merger were left vague by the companies' spectacularly uninformative statement, but one thing is clear: the merged firm will be a giant. Sales of the two companies now total about $4 billion a year, a figure running fender-to-fender with Daimler-Benz and outranked in the European auto industry only by Volkswagen.

Still, the combination seems curious. Citroen is obviously ripe for merger. The company in 1972 earned only a pathetic $6.3 million profit on $2 billion sales; last year it nearly doubled its earnings, but it recently announced that it expects a loss in 1974. The company has been hit hard by credit restrictions and high fuel costs, and its managers are more adept at engineering than at marketing. If the left had won the French presidential elections in May, Citroen would almost certainly have been a prime candidate for nationalization.

Peugeot seems to have less to gain from a merger. It has been doing very well on its own; in 1972 it earned $65.3 million, or ten times Citroen's profits, on just about the same sales: $2.1 billion. Peugeot offers a complete line of cars, in contrast to Citroen, which has concentrated on the upper and lower ends of the market with its avant-garde luxury lines and spartan, eccentrically styled Deux Chevaux. The merged company will be headed by Peugeot Director-General Francois Gautier, 67, but Michelin tire company, which owns a controlling share of Citroen's stock, is expected to retain a similar position in the combined enterprise. Not surprisingly, French investors reacted to the engagement by bidding up the price of Citroen's stock --and bidding down Peugeot's.

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