Paris team visits to close in on Peugeot-Dongfeng deal

PUBLISHED : Monday, 10 February, 2014, 4:31am
UPDATED : Monday, 10 February, 2014, 4:31am

PSA Peugeot Citroen negotiators and French government officials left for China at the weekend, sources said, for what the French carmaker hopes will be a final round of tie-up negotiations with Dongfeng Motor.

Peugeot and joint-venture partner Dongfeng are in the final straight of talks on a deal that would see the mainland carmaker and the French government take matching stakes in the Paris-based company through a €3 billion (HK$31.4 billion) share issue. The final push for an agreement, due to be presented to the French carmaker's board next week, follows public discord among members of the founding Peugeot family and protests from minority shareholders over the planned capital increase.

"The proposed cash infusion by Dongfeng into PSA is likely to further cement co-operation between the two companies," Bernstein analyst Max Warburton said.

The state-owned mainland carmaker "would bring zero operational expertise, but it would bring capital and might give PSA privileged market access", he added in a recent note.

Crippled by Europe's six-year market slump, Peugeot has said it needs fresh funding to survive in the medium term. The firm's financing arm is already being kept afloat by a €7 billion loan guarantee from the French state.

The draft deal to be discussed this week would see Peugeot stakes sold to Dongfeng and the French government in a reserved capital increase, followed by a rights issue in which all shareholders could buy more stock.

The pricing under discussion ranged between about €7.50 and €8.50 per share, sources close to the talks said. The stock closed 2.5 per cent higher at €11.49 in Paris on Friday, valuing the company at €3.96 billion.

In a letter leaked to French media, Peugeot chairman Thierry Peugeot championed an alternative plan that would have raised more of the cash on the market and reduced the holding sold directly to the French state. But he was outgunned on the Peugeot board, which last week reiterated its support for the tie-up plan led by outgoing chief executive Philippe Varin.

A prominent French shareholders' rights group had also voiced concerns about governance problems posed by the arrival of two new major shareholders and the dilution of existing investors. The proposed combination is likely to swell Peugeot's board from the current 15 members to 22, according to a source close to the talks: three for each major shareholder, three for the staff and 10 independents including a new chairman.

About €1 billion of the new financing is likely to come from the reserved capital increase and the remaining €2 billion from the rights issue, one source said.

Peugeot has said that it is considering a fourth mainland factory with Dongfeng as well as an exclusive agreement to develop its HybridAir transmission technology.