Peugeot to Weigh Capital Injection From Dongfeng
Board Meeting, Set for Oct. 22, Follows Months of Talks on Closer Ties With Chinese Partner
The board of PSA Peugeot Citroën UG.FR -0.08% will meet later this month to consider a potential capital injection from Chinese partner Dongfeng Motor Corp., according to a person familiar with the matter, as the ailing French auto maker looks for financing to ensure its survival into the second half of this decade.
Battered by dwindling sales in Europe, its core market, Peugeot is continuing to rack up losses and is burning cash that it badly needs to develop new products and expand its industrial footprint outside Europe in coming years.
Peugeot's board meeting, set for Oct. 22, comes after months of talks with Dongfeng about a potential expansion of their existing partnership outside China, including an investment in Peugeot, people familiar with the matter said.
The French government also could participate in a capital increase alongside Dongfeng, to help fund its development projects after 2016, though Peugeot hasn't formally asked it to do so, one of the people added.
A Peugeot spokesman confirmed that a regularly scheduled board meeting is slated for Oct. 22. The spokesman said the auto maker is continuing to look at possible industrial and commercial partnerships with various other industrial groups, and that ways to finance future projects is part of these discussions.
A Dongfeng spokesman declined to comment.
Dongfeng confirmed last month that it had been approached by investment banks proposing stronger ties with Peugeot, but said these discussions were at a very preliminary stage.
French Finance Minister Pierre Moscovici , speaking to reporters in Washington on Saturday, played down the suggestion that the French state is gearing up to pump taxpayers' money into Peugeot.
"Developing strong industrial partnerships is more of a priority for the company than for the French state or another automotive group to buy into its capital," Mr. Moscovici said.
Reuters new service earlier reported the possibility of a capital increase led by Dongfeng and the French government.
A potential tie-up with Dongfeng comes as Peugeot continues to struggle. It posted a net loss of €5 billion ($6.75 billion) in 2012 and consumed €3 billion of operational free cash flow. While it expects to halve that figure this year, the company is nevertheless continuing to lose share in the European automobile market.
The Peugeot family, which collectively owns 25.4% of the company's capital and 38.1% of its voting rights, has effectively controlled Peugeot for two centuries. But a capital increase could dilute that control significantly.
A family representative couldn't be reached for comment.
A deeper Peugeot-Dongfeng alliance or capital injection would fit into expansion plans by Chinese automobile makers, which are eager to build technological know-how and expand out of their home market. "Chinese state-owned and affiliated auto makers and suppliers in China are cash rich, giving them leeway to gain stakes and in some cases fully acquire international players," said Namrita Chow , IHS automotive analyst.
In 2010, Zhejiang Geely Holding Group Co. bought Volvo from Ford Motor Co. F +1.06%SAIC Motor Corp. 600104.SH +3.92% purchased technology from the now-defunct MG Rover Group Ltd.
A Dongfeng deal could pose conflicts between Dongfeng and Peugeot's main industrial partner, General Motors Co. GM +1.43% The American company owns a 7% stake in Peugeot, with the two companies jointly developing vehicles. Their agreement gives either party the right to walk away in the event of a change of control at the other. Such a change could involve Peugeot selling as little as 10% voting stake to a competitor, according to a securities filing.
However, people close to GM said on Sunday that the company wouldn't balk at a Dongfeng or French government stake in Peugeot.
It isn't clear how Dongfeng and Peugeot would fare outside China, analysts say.
Controlling a foreign company and getting the technology are two different things, said John Zeng , a managing director at consulting firm LMC Automotive in Shanghai.
"Dongfeng doesn't have much technology and little experience in managing overseas operations," said Mr. Zeng. "Even if they had controlling share in PSA, how are they going to manage a company like that which is facing big trouble?" he asked.
A decision by the French state to buy into Peugeot would require prior approval by the European Union commission, which would need to ensure it doesn't amount to unfair, trade-distorting state aid. Peugeot's local rival Renault was once totally state-owned, but the state's interest has since been whittled down to 15%.