Peugeot Is In Talks With General Motors on Possible Alliance; Shares Surge
The alliance may include developing engines and building vehicles together in the region, a person familiar with the discussion said today, declining to be identified because the talks aren’t public. Peugeot rose the most in almost three years.
GM, the world’s largest carmaker, is looking for ways to turn around its unprofitable Opel brand, while Peugeot is seeking to stem a growing debt load. Peugeot’s 2011 sales in the region plunged 8.8 percent to 1.68 million vehicles. GM’s dropped 1.9 percent to 1.17 million. Auto executives expect deliveries in the region to shrink in 2012 for a fifth year.
“A partnership with GM would make sense, because Peugeot and Opel both lack scale,” said Sascha Gommel, a Frankfurt- based Commerzbank analyst with a “hold” rating on Peugeot shares, adding that Fiat (F) SpA is also a potential partner.
Peugeot shares gained 1.74 euros, or 12 percent, to 16.13 euros as of the close of trading in Paris. The stock has slumped 44 percent over the last 12 months, bringing its market value to 3.77 billion euros ($5 billion). GM fell 1.9 percent to $26.55 at the close in New York.
GM Chief Executive Officer Dan Akerson declined to comment to reporters at a Habitat for Humanity event in Detroit. Klaus- Peter Martin, a GM spokesman, said earlier “we routinely talk with others in the industry” while not commenting beyond that. Jonathan Goodman, a Peugeot spokesman, reiterated comments the Paris-based carmaker made last night that it was in discussions on possible partnerships without providing specifics.
About 6.8 percent of Peugeot’s stock, the second-highest in the European auto sector after Fiat, has been lent out, according to Data Explorers in London, most likely to speculators who are betting the shares will fall. In a short sale, traders borrow securities to sell them on expectations they will be able to buy them back at a cheaper price.
Peugeot Chief Executive Officer Philippe Varin informed French Labor Minister Xavier Bertrand of the talks yesterday, Bertrand said in an interview with radio station Europe1 today.
Varin said last week that the company was willing to investigate partnerships as long as they were in line with the group’s strategy, including expansion outside Europe, and contributed synergies while maintaining Peugeot’s independence.
Peugeot, Europe’s second-biggest automaker after Volkswagen AG, announced plans last week to sell 1.5 billion euros in assets to reduce debt, which widened to 3.4 billion euros as profit and sales fell.
Should the outcome of talks with Detroit-based GM be positive, an accord may be announced at the Geneva car show the first week of March, French newspaper La Tribune reported last night, adding that the discussing have been going on for several months.
Peugeot’s credit-default swaps fell 46.5 basis points today to a two-week low of 461, a 9 percent decline, according to CMA prices. A decline in credit-default swap prices indicates an improvement in perceptions of creditworthiness.
A basis point on a default swap protecting 10 million euros of debt for five years is equivalent to 1,000 euros a year. CMA, which is owned by CME Group Inc., compiles prices quoted by dealers in the privately negotiated market.
GM, which last week posted a record annual net income of $9.19 billion for 2011, is planning more cost cuts for its unprofitable European unit after the last turnaround plan failed to end losses there.
The automaker’s Europe business, including the Opel brand, lost $747 million last year before taxes and interest. While that’s an improvement from $1.95 billion lost in 2010, GM had planned to break even in the region until November, when it pulled back the forecast as the European outlook worsened.
Peugeot, whose origins date back to the early 19th century laminated steel- and toolmaker Peugeot-Frères et Jacques Maillard-Salins, is still 30 percent owned by the Peugeot family, according to data compiled by Bloomberg.
The company’s current chairman Thierry Peugeot is the great-grandson of Eugene, who jointly led the company with his cousin Armand when it produced its first automobile in 1891. Thierry is joined on the board by relatives Roland, Robert and Jean-Philippe Peugeot, and Marie-Helene Roncoroni.
Blackrock Inc. last year became the second-largest investor with 5 percent, according to a regulatory filing.
Fiat isn’t currently in talks with Peugeot, a person familiar with the matter said today, declining to be identified discussing a private topic.
Fiat CEO Sergio Marchionne said last month in Detroit he’s willing to participate in industry consolidation in Europe and would consider adding a third partner before a planned merger between Fiat and U.S. automaker Chrysler Group LLC.
Carmakers in Europe need to consolidate to compete with VW, which had a market share in the region of 23.3 percent last year, Marchionne said Jan. 10. He said at the time that Fiat wasn’t discussing with Peugeot or other potential partners, including GM’s Opel unit, though he wouldn’t close the door on any eventual alliances.
Fiat held talks with Peugeot after the 2008 financial crisis regarding a possible combination, a person familiar with the matter said. Negotiations failed because the Peugeot family didn’t want to lose control over the carmaker, the person said.
Peugeot, whose carmaking division missed a target of breaking even in 2011, said Feb. 15 it will sell property as well as a holding in the Gefco trucking unit that has yet to be determined. The disposals include the Citer vehicle-rental unit that Peugeot sold to Enterprise Holdings Inc. on Feb. 1 for 440 million euros.
Earnings before interest, taxes and one-time gains or costs fell to 1.32 billion euros in 2011 from 1.8 billion euros a year earlier, Peugeot said last week. The company’s deliveries globally fell 1.5 percent to 3.5 million vehicles in 2011, led by the drop in Europe.