Peugeot moves closer to Dongfeng deal as sales sag

Mon Jan 20, 2014 3:48pm EST
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By Laurence Frost and Sophie Sassard

PARIS/LONDON (Reuters) - French carmaker PSA Peugeot Citroen (PEUP.PA: Quote) has taken a decisive step towards a tie-up with China's Dongfeng Motor Co. (0489.HK: Quote) as the board approved the outlines of a contentious survival plan that divided the founding Peugeot family.

In a blow to Chairman Thierry Peugeot, who had championed an alternative plan, the board agreed in principle to a capital increase that would see the Chinese state-owned carmaker and French government acquire minority stakes and the family cede control, sources familiar with the matter said on Monday.

Peugeot confirmed in a statement that it was looking to raise 3 billion euros ($4.1 billion) in a deal with Dongfeng, after unveiling a further 4.9 percent decline in global vehicle deliveries for 2013 earlier on Monday.

The French government would subscribe to the share issue "on the same terms and conditions as Dongfeng", Peugeot said, an assertation later confirmed in a joint statement from French Finance Minister Pierre Moscovici and Industry Minister Arnaud Montebourg.

The company's shares fell 11 percent on news of the board decision to press ahead with the planned deal, which would dilute existing shareholders.

"We're skeptical about this kind of plan - a very dilutive capital increase for a weak industrial project," said Florent Couvreur, a Paris-based analyst with CM-CIC Securities.

The operation would leave "three main shareholders with conflicting objectives", Couvreur added in a note to investors. "This is a rejection for Chairman Thierry Peugeot."

Peugeot has said it will need fresh funding to stay competitive and is pursuing talks on a deeper relationship with Dongfeng, its existing partner in a Chinese joint venture.   Continued...

Philippe Varin, chief executive officer of French carmaker PSA Peugeot Citroen, visits the third factory of Dongfeng Peugeot Citroen Automobile company after its inauguration ceremony in Wuhan, July 2, 2013. REUTERS/China Daily