Peugeot to Pursue $4.1 Billion Capital Increase

PSA Peugeot Citroen (UG) is considering a capital increase of 3 billion euros ($4.1 billion), the second time in two years it’s selling shares to raise funds as the unprofitable French automaker consumes cash.

Dongfeng Motor Corp. (489) may first contribute funding through a sale reserved for Peugeot’s Chinese partner, with a rights offering to follow that Dongfeng would also participate in, the Paris-based automaker said in a statement last night. The French state may also buy shares in both sales, Peugeot said.

The funding is equal to 83 percent of the current market capitalization of Europe’s second-largest carmaker and follows a share sale in March of 2012 to raise 1 billion euros. Peugeot, which reported a first-half operating loss in the automotive unit of 510 million euros, reiterated last month a target to reduce cash burn by at least 50 percent to 1.5 billion euros for 2013 and reach breakeven this year.

“The cash inflow would reduce leverage and could buy the company some time,” Emmanuel Bulle, a Fitch Ratings senior analyst, said in a statement today. “However, issuing new shares and changing the shareholder structure would not address the key challenges of weak profitability and negative free cash flow from industrial operations.”

Photographer: Tomohiro Ohsumi/Bloomberg

Workers make final inspections of a Peugeot 3008 compact sport-utility vehicle on the production line at a Dongfeng Peugeot-Citroen Automobile Ltd. plant in Wuhan, China. Close

Workers make final inspections of a Peugeot 3008 compact sport-utility vehicle on the... Read More

Photographer: Tomohiro Ohsumi/Bloomberg

Workers make final inspections of a Peugeot 3008 compact sport-utility vehicle on the production line at a Dongfeng Peugeot-Citroen Automobile Ltd. plant in Wuhan, China.

Peugeot plunged 1.28 euros, or 11 percent, the steepest decline since Dec. 13, to 10.21 euros at the close of trading yesterday in Paris. That pared the stock’s gain in the past 12 months to 63 percent.

Defining Moment

Dongfeng and the French government would each contribute at least 750 million euros in exchange for holdings of about 14 percent apiece, a person familiar with the matter said earlier yesterday. The automaker would then hold a rights issue of about 1.4 billion euros for the rest of the funding, said the person, who asked not to be identified discussing private talks.

A Dongfeng deal would represent a defining moment for Europe’s second-largest carmaker, which has been controlled by the founding family since its establishment in 1896 as the automaker seeks to expand outside its home region, where demand has fallen for the last six years. The French manufacturer has a target of selling more than 50 percent of its cars outside Europe by 2015. That figure reached 42 percent in 2013.

“If we invest in Peugeot, it’ll bring benefits such as technology and other resources that will help us develop our own cars,” Dongfeng General Manager Zhu Fushou said in an interview yesterday in Beijing. “Peugeot’s main problem is its heavy reliance on Europe, which it should address by shifting focus to emerging markets.”

Final Deal

Existing shareholders would be given the right to buy shares at the price that Dongfeng and France pay in their reserved capital increase, the automaker said.

The controlling Peugeot family would invest about 100 million euros to maintain a stake in the manufacturer of 14 percent, the person said. Members of the family, whose current holding totals 25.5 percent, are divided over whether to accept the deal, people familiar said.

Peugeot aims to reach final agreement by Feb. 19 when it reports annual results, the automaker said in yesterday’s statement, adding that it’s looking at alternative capital increase scenarios.

“This goes into the right direction as this will provide funding for the company to invest into new models and turn back the focus into the operating business,” said Sascha Gommel, a Frankfurt-based analyst with an add recommendation on the shares. “There needs to be some more clarity on the eventual discount rate” and how the deal will be eventually structured.

Strategic Shift

An investment from Wuhan-based Dongfeng and France would mark a shift in strategic emphasis after an alliance between Peugeot and General Motors Co. (GM) missed savings goals.

GM and Peugeot set up the partnership in early 2012 for joint purchases of vehicle parts and model development. The Detroit-based carmaker sold its 7 percent stake Peugeot in December, 21 months after acquiring the holding. Cost reductions from the tie-up will total $1.2 billion through 2018, 40 percent less than the $2 billion predicted.

Dongfeng, established in 1969, is one of China’s top four automakers. In addition to building passenger cars and commercial vehicles under its own brands and with Peugeot, it also produces models for Nissan Motor Co. (7201), Kia Motors Corp. (000270) and Honda Motor Co. In December, Dongfeng signed an agreement to make vehicles in China with French competitor Renault SA. (RNO)

Peugeot and Dongfeng opened their third joint assembly plant in July to produce four models in China. Peugeot also has a factory in the country with Chang’An Automobile Group to make DS models. Peugeot plans to have production capacity for 950,000 vehicles in China by 2015.

China Expansion

Chinese growth and the introduction of models such as the 2008 and 3008 crossovers and C4L sedan helped Peugeot report a 4.1 percent fourth-quarter increase in deliveries. The gain pared the full-year sales decline to a 4.9 percent drop for a total 2.82 million cars and light-commercial vehicles.

The company hired Carlos Tavares, a former manager at Renault, to become chief executive officer later this year. Tavares told unions last week that the automaker needs to focus on returning to a positive free cash flow, better managing vehicle stocks and increasing its market share in Europe, two people familiar with the matter said.

Tavares plans to give his diagnosis on the state of Peugeot in about 100 days and is likely to take over as CEO before then, said the people, who asked not to be identified discussing a private meeting.

To contact the reporter on this story: Mathieu Rosemain in Paris at

To contact the editor responsible for this story: Chad Thomas at

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