Peugeot reaffirms talks to raise investment funding

Bloomberg

Tue, Oct 15, 2013 - Page 15

PSA Peugeot Citroen, Europe’s second-biggest automaker, reaffirmed it is examining new cooperation agreements to raise cash for investments and expand outside its home continent, where demand is at a 20-year low.

Peugeot is “examining industrial and commercial developments with different partners, including the financial implications that would result from them,” the Paris-based automaker said in a statement yesterday, without providing details. “None of these projects has reached maturity yet.”

Dongfeng Motor Corp (東風汽車) plans to buy a 30 percent stake in Peugeot for 10 billion yuan (US$1.63 billion), China Business News reported on Tuesday last week, citing an unidentified official from the Chinese company.

Peugeot is preparing to sell 3 billion euros (US$4.1 billion) of new stock, with Dongfeng and the French government buying matching stakes in the carmaker, Reuters reported on Saturday, citing three unidentified people.

The two automakers said last month that they are talking about deepening their partnership.

A Dongfeng investment would provide Peugeot with cash to shore up its finances and also help in efforts to expand outside Europe, where the auto market is set to sink a sixth straight year. Peugeot and Dongfeng already operate three assembly plants together in China, the world’s largest auto market.

“The situation is dire,” David Arnold, a London-based industry specialist at Barclays Capital, said in an e-mail to clients. “It’s clear that cash is now much more of a drag and the company realizes that it cannot starve the business of investment or it will lose out long term.”

Peugeot’s board will discuss the possible stake sale at a board meeting scheduled for Tuesday next week, the day before the automaker reports third-quarter revenue figures, said two people familiar with the matter, who asked not to be identified because the gathering is private.

“What counts is that, to stabilize its situation, PSA can develop these partnerships,” French Minister of Finance Pierre Moscovici said yesterday on France Inter radio. “What has to come before everything else is the industrial strategy, the industrial partners.”

Peugeot, which reported a first-half operating loss in its automotive unit of 510 million euros, is cutting 11,200 jobs and closing a factory outside Paris to reduce spending.

Varin has pledged to reduce the manufacturer’s cash-consumption rate by 50 percent this year after burning through 3 billion euros last year.

A stake purchase of 30 percent would raise legal questions as well as potential hurdles with the two largest investors, the Peugeot family and General Motors.

Under French law, anyone buying a 30 percent holding or more in a listed company must make a tender offer on all the remaining shares, French markets regulator AMF said last week.

Meanwhile, Peugeot management held its final meeting last week with French unions to reduce overtime pay and freeze salaries in its home country, in exchange for increased French production and investments over the next three years, to lower labor costs.