As PSA Peugeot Citroen (UG) uses up 200 million euros ($260 million) in cash every month, the family that founded the French automaker and can determine its fate is getting better returns from alternative investments -- like nursing homes.
The acquisition of 7 percent of Orpea, which operates assisted-living facilities, is part of a diversification strategy in the last decade that has reduced the automaker’s share of assets in the family’s listed holding company to 35 percent from more than 90 percent in 2000.
Signs that the family is wavering in its commitment complicates Peugeot’s efforts to reverse deepening losses that pushed its shares this year to a 23-year low. The shift coincides with clashes between the family over its role at the carmaker, including Thierry Peugeot blocking his cousin Robert’s effort to take an executive post at the automaker in 2006, two people familiar with the matter said.
“As the number of descendants keeps growing, some of the younger ones may become less involved in the car business and may be tempted to leave the ship if it isn’t profitable enough,” said Bernard Jullien, an industrial economist with French automotive think-tank Gerpisa. “Peugeot managers are not given enough leeway to lead the company.”
Peugeot, Europe’s second-largest carmaker after Volkswagen AG (VOW), lost 662 million euros ($860 million) at its automotive operations in the first half. Slow to expand outside Europe, Peugeot’s home region accounted for 76 percent of revenue last year, compared with 65 percent at VW.
To bolster its balance sheet, the manufacturer this year issued 1 billion euros in new shares and sold assets including its 48-year-old Paris headquarters. The company today agreed to sell a 75 percent stake in its Gefco trucking unit to OAO Russian Railways for 800 million euros and a special dividend of 100 million euros. The company was lowered to three levels below investment grade by Fitch Ratings yesterday.
Having rebuffed previous partnership offers, Peugeot agreed in February to cooperate with General Motors Co. (GM), making the American automaker the second-largest shareholder.
With the automaker faltering, Robert Peugeot has focused on running the family’s FFP holding company, still the carmaker’s biggest shareholder, and has diversified assets with purchases such as the Orpea stake, household appliance maker Groupe SEB and marketing services company DKSH.
The holding company has benefited from those moves. FFP’s stock, traded in Paris, is off by just 3.3 percent this year, with holdings like Orpea (ORP), which has gained 22 percent, offsetting the 35 percent decline in the shares of the automaker. Peugeot fell as much as 1.6 percent in Paris trading today, and was 0.4 percent lower as of 9:38 a.m. local time.
The Peugeot family currently owns 25.4 percent of the company’s shares through FFP and Etablissements Peugeot Freres, another holding company that in turn controls FFP. All told, the family controls 38.1 percent of Peugeot’s voting rights, which means they can block decisions requiring shareholder approval. And five family members are on Peugeot’s 14-seat supervisory board.
Thierry Peugeot, the carmaker’s chairman, declined to comment for this story. At an event this month at Peugeot’s Sochaux factory, the company’s oldest and largest assembly plant, he walked away when asked about the role of the family in the company. “Me, I don’t exist,” he said.
Robert Peugeot didn’t respond to requests for an interview. In comments to French newspaper Le Figaro in March, he said FFP (FFP) planned to ensure its stability, while at the same time retaining its role as Peugeot’s anchor shareholder.
Lack of Leadership
Those aims may require further diversification beyond the minority stakes it holds in 10 other companies and the investments made with private equity firms. FFP reported a first-half net loss of 66 million euros as profits elsewhere only partially offset FFP’s 156 million-euro burden from Peugeot’s losses.
The family hasn’t had clear leadership in 10 years, said Jean-Louis Loubet, a professor at the University of Evry-Val d’Essonne and author of a book on the Peugeot dynasty.
“The decision-making process used to be centralized in the hands of Pierre Peugeot, the family’s strongman,” Loubet said in an interview. “Since his death in 2002, the family governance has become more collaborative.”
The family’s divergent views were evident when Robert Peugeot sought a front-line role after Jean-Martin Folz stepped down as chief executive officer in 2006. Thierry blocked the move, arguing that tradition was to choose outside CEOs, said two people who asked not to be identified because they wanted to maintain good relations with the family.
Since then, Peugeot has had two CEOs, neither with auto industry experience. Christian Streiff, a former Airbus executive, lasted just over two years. Current CEO Philippe Varin is the former head of steelmaker Corus Group Ltd.
The backing of a stable, long-term shareholder can be a key support in the auto industry, where cars require years of development. Bayerische Motoren Werke AG (BMW) was saved from collapse in the 1960s after Herbert Quandt backed development of new models, allowing it to fend off a takeover bid from the parent of Mercedes-Benz. The Quandt family, BMW’s largest shareholder, still supports the luxury-car maker. For decades, VW has been backed by its home state of Lower Saxony, which can block major strategy decisions.
Renault SA (RNO), which is 15 percent-owned by the French government, expanded outside Europe by partnering with Japan’s Nissan Motor Co. (7201) in 1999. The alliance has continued to push into growth markets and agreed this year to buy 74.5 percent of Russia’s dominant carmaker OAO AvtoVAZ. (AVAZ) Renault posted a first- half operating profit of 482 million euros.
Peugeot’s efforts to secure partners have been less successful. A joint venture with BMW to develop electric powertrains and components broke down in July, and talks with Mitsubishi Motors Corp. (7211) about an alliance were called off in 2010 because of financing concerns.
The February agreement with GM to cooperate on purchasing and vehicle development in Europe has yet to yield concrete results. The Detroit carmaker said in August that it may write down the value of its 7 percent stake in Peugeot that was part of the deal.
Given Peugeot’s woes and the family’s divided interests, there may be little chance that the founder’s heirs will refocus on the carmaker.
“FFP’s other investments have done well so far,” said Florent Couvreur, an analyst at CM-CIC Securities. “It now looks more like an investment fund than a family holding.”
To contact the reporter on this story: Mathieu Rosemain in Paris at firstname.lastname@example.org