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Peugeot Examining Partnerships to Expand Outside Europe

PSA Peugeot Citroen (UG), Europe’s second-biggest carmaker, is considering new cooperation agreements to raise cash for investments and expand outside its home continent, where demand is at a 20-year low.

The French automaker “is examining new industrial and commercial development projects with different partners, including the financial implications that would accompany them,” Jean-Baptiste Thomas, a Peugeot spokesman, said today. “None of these projects has reached maturity at this stage.”

Dongfeng Motor Corp. (489) plans to buy a 30 percent stake in Peugeot for 10 billion yuan ($1.63 billion), China Business News reported yesterday, citing an unidentified official from the Chinese company. The two automakers said last month that they are talking about deepening their partnership.

An investment from Dongfeng would provide Peugeot with needed cash to shore up its finances and also help in the French automaker’s efforts to expand outside Europe, where the auto market is set to sink for a sixth straight year. Peugeot and Dongfeng already operate three assembly plants together in China, the world’s largest auto market.

Peugeot climbed as much as 34 cents, or 2.7 percent, to 12.65 euros and was up 0.7 percent as of 10:59 a.m. in Paris trading. The stock has more than doubled this year, valuing the manufacturer at 4.4 billion euros ($5.95 billion).

Dongfeng said last month that the company is doing “preliminary research” on a Peugeot investment. Philippe Varin, the French automaker’s chief executive officer, said in September that he was examining all options to deepen the Dongfeng partnership, with a focus first on industrial cooperation before any financial links.

Cutting Jobs

Peugeot, which reported a first-half operating loss in its automotive unit of 510 million euros, is cutting 11,200 French jobs and closing a factory outside Paris to reduce spending. Varin has pledged to reduce the manufacturer’s cash-consumption rate by 50 percent in 2013 after burning through 3 billion euros last year.

Peugeot is negotiating with unions to reduce overtime pay and freeze salaries, in exchange for increased French production and investments over the next three years, to lower labor costs. Any share sale to an outside investor is contingent on the success of those talks, Christian Lafaye, head of the FO union at Peugeot, said today by phone.

To contact the reporter on this story: Mathieu Rosemain in Paris at mrosemain@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net

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