French Government, Dongfeng to Buy Half of Peugeot Cap Hike -Report

PARIS--The French government and Chinese manufacturer Dongfeng Motor Co. are expected to buy about half of the shares in French automaker PSA Peugeot Citroën SA's (UG.FR) planned 3 billion euro ($4 billion) capital increase, French daily Les Echos reported Monday.

Following a nearly five-hour meeting that dragged late into the evening on Sunday, board members gave Chief Executive Philippe Varin a mandate to start more formal talks with Dongfeng and the French government, according to a person familiar with the matter.

One scenario discussed by Peugeot's board involves Dongfeng and the French government each buying EUR750 million in Peugeot shares, priced between EUR7.50 and EUR8, according to Les Echos. The company would then make an additional public rights issue to make up the remaining EUR1.5 billion, Les Echos reported. The Peugeot family would be expected to buy enough shares to maintain a 14% stake in the automaker, according to Les Echos.

At stake is how to provide the loss-making company with the financial means to pursue the heavy industrial, research and development and commercial investment that it needs to ensure its future and bolster its presence in overseas markets.

Les Echos said Peugeot's board is also considering replacing its chairman, Thierry Peugeot. Leading candidates include Louis Gallois, the French government's representative on the Peugeot board, Les Echos said.

The board is seeking to finalize its plans for the capital increase before Feb. 19, according to Les Echos, the date when Mr. Varin is expected to hand the reins over to Carlos Tavares.

Newspaper website: http://www.lesechos.fr

Write to Stacy Meichtry at [e-mail]

Subscribe to WSJ: http://online.wsj.com?mod=djnwires