Dongfeng deal buys time and new blood for Peugeot

Tue Feb 18, 2014 11:08pm EST
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By Samuel Shen and Laurence Frost

SHANGHAI/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 Motor Group Co Ltd (0489.HK: Quote) and the French government have signed a non-binding outline agreement, China's second biggest carmaker announced on Wednesday, confirming an earlier Reuters report.

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."

Under the memorandum of understanding signed on Tuesday, Dongfeng and the French state will each pay about 800 million euros ($1.10 billion) for a 14 percent stake in a reserved share sale and a rights issue, Dongfeng said in a statement published on the Hong Kong stock exchange website.

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.

The rescue deal and an expected new lending partnership with Banco Santander (SAN.MC: Quote) will help Peugeot survive the expiry next year of 7 billion euros in state guarantees keeping its lending arm afloat.   Continued...

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