After the China Business News reported that Dongfeng Motor will purchase a 30% stake in PSA/Peugeot-Citroen for $1.63 billion (10 billion yuan) the French automaker confirmed that it is indeed having talks with possible foreign partners but would not comment specifically on a possible equity sale to Dongfeng. “We have a partnership with Dongfeng and we are looking at how how we can expand it, but nothing more has been decided,” a PSA spokesperson told the Automotive News. PSA said that it is looking at new industrial and commercial projects with a variety of partners, ”including the financial implications that would accompany them.” PSA has a current market valuation of 4.4 billion euros ($5.95 billion), its stock having doubled in price this year.
PSA and Dongfeng currently operate three joint venture assembly plants in China. PSA CEO Philippe Varin said last month that he was looking a options to deepen the relationship between the two companies, focusing on industrial cooperation before establishing financial ties.
PSA needs cash to service its current debt and to expand globally beyond its stagnant European home market. Florent Couvreur, an analyst at CM-CIC Securities, said, “The two main questions are: how much do they need and where will they find the money? I’m betting they need about 2 billion euros to face their debt obligations in 2014.” The French company reported a 510 million euro operating loss for its automotive unit in the first half of 2013, and it burned through 3 billion euros in cash in 2012. PSA is negotiating with unions to freeze salaries and reduce overtime pay in exchange for increased production and more investment in French operations. The company had already announced the closing of a factory near Paris and the reduction of 11,200 jobs in France.
Dongfeng taking such a large stake in PSA would create legal and financial ramifications. Under French law, anyone buying at least a 30% share in a listed company must also tender an offer to owners of all remaining shares. PSA’s current largest owners are the Peugeot family, which holds 25.5% of PSA and GM which owns 7%. The Peugeot family, which would lose control of the company if Dongfeng acquired such a large stake, has not commented on the reports. General Motors’ vice chairman Steven Girsky said last month that the Detroit based automaker was not concerned should Dongfeng take a stake in PSA, though its agreement with the French car company gives GM the option of ending the partnership should control of the company change hands.
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