Bloomberg News

Peugeot Plans $4.1 Billion Capital Increase to Boost Funding (1)

January 20, 2014

Dongfeng Peugeot-Citroen plant in China

Workers make final inspections of a Peugeot 3008 compact sport-utility vehicle on the production line at a Dongfeng Peugeot-Citroen Automobile Ltd. plant in Wuhan, China. Photographer: Tomohiro Ohsumi/Bloomberg

PSA Peugeot Citroen (UG) is considering a capital increase of 3 billion euros ($4.1 billion) to raise funds for new models and expand in growth markets.

Dongfeng Motor Corp. (489) may first contribute funding through a sale reserved for Peugeot’s Chinese partner, with a rights offering to follow that Dongfeng would also participate in, the Paris-based automaker said in a statement. The French state may also buy shares in both sales, the automaker said.

Dongfeng and the French government would each contribute at least 750 million euros in exchange for holdings of about 14 percent apiece, a person familiar with the matter said earlier today. The automaker would then hold a rights issue of about 1.4 billion euros for the rest of the funding, said the person, who asked not to be identified discussing private talks.

A deal with Dongfeng would represent a defining moment for Europe’s second-largest carmaker, which has been controlled by the founding family since its establishment in 1896 by Armand Peugeot. The Paris-based manufacturer has a target of selling more than 50 percent of its cars outside Europe by 2015, and said earlier today that the figure reached 42 percent in 2013.

“If we invest in Peugeot, it’ll bring benefits such as technology and other resources that will help us develop our own cars,” Dongfeng General Manager Zhu Fushou said in an interview earlier today in Beijing. “Peugeot’s main problem is its heavy reliance on Europe, which it should address by shifting focus to emerging markets.”

Shares Plunge

Existing shareholders would be given the right to buy shares at the price that Dongfeng and France pay in their reserved capital increase, the automaker said today.

“The new shares will be sold at a discount, which will dilute the capital and push the price of the shares down,” said Florent Couvreur, an analyst with CM-CIC Securities in Paris who recommends selling the stock.

Peugeot plunged 1.28 euros, or 11 percent, the steepest decline since Dec. 13, to 10.21 euros at the close of trading today in Paris. That pared the stock’s gain in the past 12 months to 63 percent.

The French manufacturer is struggling to end losses following a European auto-market contraction that lasted into a sixth year in 2013. The reorganization has included moves to add models, shutter an auto plant near Paris and cooperate with other manufacturers.

Reaching Agreement

The controlling Peugeot family would invest about 100 million euros to maintain a stake in the manufacturer of 14 percent, the person said. Members of the family, whose current holding totals 25.5 percent, are divided over whether to accept the deal, people familiar with the matter said.

Peugeot aims to reach final agreement by Feb. 19 when it reports annual results, the automaker said today, adding that it’s looking at other alternative capital increase scenarios.

An investment from Wuhan-based Dongfeng and France would mark a shift in strategic emphasis after an alliance between Peugeot and General Motors Co. (GM:US) missed savings goals.

GM and Peugeot set up the partnership in early 2012 for joint purchases of vehicle parts and model development. The Detroit-based carmaker sold its 7 percent stake Peugeot in December, 21 months after acquiring the holding. Cost reductions from the tie-up will total $1.2 billion through 2018, 40 percent less than the $2 billion predicted.

Chinese Factories

Dongfeng, established in 1969, is one of China’s top four automakers. In addition to building passenger cars and commercial vehicles under its own brands and with Peugeot, it also produces models for Nissan Motor Co. (7201), Kia Motors Corp. (000270) and Honda Motor Co. In December, Dongfeng signed an agreement to make vehicles in China with French competitor Renault SA. (RNO)

Peugeot and Dongfeng opened their third joint assembly plant in July to produce four models in China. Peugeot also has a factory in the country with Chang’An Automobile Group to make DS models. Peugeot plans to have production capacity for 950,000 vehicles in China by 2015.

Growth in Chinese demand and the introduction of models such as the 2008 and 3008 crossovers and C4L sedan helped Peugeot report a 4.1 percent fourth-quarter increase in deliveries today. The gain pared the full-year sales decline to a 4.9 percent drop for a total 2.82 million cars and light-commercial vehicles.

The company hired Carlos Tavares, a former manager at Renault, to become chief executive officer later this year. Tavares told unions last week that the automaker needs to focus on returning to a positive free cash flow, better managing vehicle stocks and increasing its market share in Europe, two people familiar with the matter said.

Tavares plans to give his diagnosis on the state of Peugeot in about 100 days and is likely to take over as CEO before then, said the people, who asked not to be identified discussing a private meeting.

To contact the reporter on this story: Mathieu Rosemain in Paris at mrosemain@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net


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