Exclusive: Peugeot board approves outline Dongfeng deal - source

Wed Dec 11, 2013 3:33pm EST
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By Sophie Sassard

LONDON (Reuters) - PSA Peugeot Citroen's (PEUP.PA: Quote) board has approved a plan for an alliance with Dongfeng (0489.HK: Quote) in which the Chinese carmaker and the French state would buy large minority stakes at a 40 percent discount to Peugeot's current share price, a source familiar with the matter said.

The board agreed to enter final negotiations on a 3.5 billion euro ($4.8 billion) share issue that would see France and Dongfeng Motor Group take matching 20 percent holdings, the source said on Wednesday, speaking on condition of anonymity.

The capital increase would be priced at below 7 euros per share, and perhaps as low as a 6.85 euro indicative offer from Dongfeng, the source said. Peugeot's shares closed at 11.50 euros on Wednesday.

A spokesman for Peugeot declined to comment on the alliance talks. Dongfeng officials could not be reached after hours in Wuhan, China. The French government also declined to comment.

Peugeot, one of the carmakers worst hit by the European market slump, is cutting jobs and plant capacity to try to halt losses within two years.

Philippe Varin, Peugeot's outgoing chief executive, has said the French carmaker is exploring a deeper relationship with Dongfeng, its existing partner in a Chinese joint venture.

The two companies have been in talks for months to extend cooperation to other Asian countries after a multibillion-euro share issue in which Dongfeng and the French government would acquire significant stakes, sources have said.

The Financial Times reported they plan to transfer some Peugeot technologies to Dongfeng while targeting new markets in southeast Asia.   Continued...

Peugeot employees work on the assembly line at the Dongfeng PSA Peugeot Citroen factory in Wuhan, capital of central China's Hubei province, November 17, 2006. CHINA OUT REUTERS/Stringer