French Government, Dongfeng Motor To Acquire Stakes in Peugeot

By David Pearson 

PARIS--Europe's second-largest automotive group PSA Peugeot Citroën Wednesday formally signed a landmark agreement that will take the company in a new direction and see a Chinese group and the French state become core shareholders.

The formal event in the gilded reception rooms of the Élysée Palace culminates a long-negotiated plan that calls for China's Dongfeng Motor Group and the French state to acquire 14% stakes in Peugeot by subscribing to a capital increase of at least EUR3 billion ($4.17 billion).

The binding agreement, signed during a state visit to France by Chinese President Xi Jinping, cements a broad cooperation deal that hinges on a much-needed capital boost for the financially ailing group.

The Peugeot family, custodians of a two-centuries-old dynasty, are giving up control and will see their stake of over 25% diluted to the same level as the new shareholders.

Peugeot is eager to reduce its dependence on the stagnating European automobile market, and both it and Dongfeng want to expand their sales into Southeast Asia and eventually into new markets in other parts of the world.

The latest midterm recovery plan for Peugeot hinges on the Dongfeng deal and the injection of capital to shore up the company's finances. Carlos Tavares, who was hired from rival Renault SA late last year and will succeed current Chief Executive Philippe Varin at the end of March, has identified several issues that need to be fixed if Peugeot is to consistently generate cash again.

Write to David Pearson at [e-mail]

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