What happened

Shares of Fiat Chrysler Automobiles (FCAU) were trading higher on Tuesday afternoon. FCA and French automaker Peugeot (PUGOY) said in a joint statement that they have agreed to revise the terms of their merger agreement, which will create the world's fourth-largest automaker when it closes next spring. 

As of 3 p.m. EDT on Tuesday, FCA's shares were up about 7.9% from Monday's closing price.

So what

FCA and Peugeot announced that they had agreed to some changes to their plan to merge into a new global automaker called Stellantis. The most significant change was to a provision to pay out 5.5 billion euros ($6.5 million) in a special dividend to FCA shareholders before the merger closes. That payout has been reduced to 2.9 billion euros; in exchange, Peugeot will distribute its 46% stake in auto supplier Faurecia to all shareholders of the new company once the deal closes.

FCA's U.S. headquarters in Auburn Hills, Michigan.

This sign will change again next spring, when FCA and Peugeot merge to form Stellantis. Image source: Fiat Chrysler Automobiles.

Peugeot had contended that given the industry's difficulties amid the COVID-19 pandemic, the 5.5 billion euro special-dividend payment was too large. That in turn had raised concerns among auto investors as to whether the merger deal was at risk

With today's agreement, those concerns have now been allayed. That's why FCA's stock was up today.

Now what

Perhaps as a consolation for the cut to FCA's special dividend, both companies' boards of directors will consider an additional special dividend to be paid to all shareholders of the combined company, the two said. That payout could be as much as 1 billion euros. 

With Peugeot's concerns resolved in a way that doesn't hurt FCA shareholders too badly, the deal appears to be on course to close by the end of the first quarter of 2021, as planned. FCA shareholders won't be thrilled to have lost some of the promised dividend, but on balance, it's good news.