Dongfeng deal buys time and new blood for Peugeot

Tue Feb 18, 2014 2:58pm EST
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By Laurence Frost and Gilles Guillaume

PARIS (Reuters) - PSA Peugeot Citroen (PEUP.PA: Quote) and China's Dongfeng have agreed a 3 billion euro ($4.1 billion) capital tie-up that brings the troubled French carmaker new leadership, more time to turn its business around and an end to two centuries of family control.

Peugeot, Dongfeng (0489.HK: Quote) and the French government have signed a non-binding outline agreement, two sources with knowledge of the matter told Reuters before an official announcement set for Wednesday.

Peugeot Chief Executive Philippe Varin and former Renault executive Carlos Tavares, who will replace Varin when the deal is finalized, must now explain how the fresh capital can be used to improve the bottom line, analysts said.

"Expectations are running high," London-based ISI Group analyst Erich Hauser said in a note. "PSA (Peugeot) needs to show a new equity story to keep investors interested."

Both companies declined to comment.

Under the memorandum of understanding signed on Tuesday, Dongfeng Motor Group and the French state will each pay about 800 million euros for a 14 percent stake in a reserved share sale and a rights issue, sources have said.

Existing shareholders will get warrants entitling them to more stock at the same 7.50 euro price as the reserved issue, a 40 percent discount to their market value, raising up to a further billion euros.

The Peugeot family will see its 25.4 percent stake and 38 percent of voting rights diluted to parity with Dongfeng and the French state, ceding control of the company it founded in 1810 as a maker of tools and coffee mills.   Continued...

Employees work at a production line of a Dongfeng Peugeot Citroen Automobile factory in Wuhan, Hubei province, February 13, 2014. REUTERS/Stringer