The family that controls PSA Peugeot Citroen (UG) has agreed to sell shares to Dongfeng Motor Corp. (487) and the French state as part of a plan to raise 3 billion euros ($4.1 billion) in fresh funding for the ailing automaker, two people familiar with the matter said.
The boards of the Peugeot family’s two holding companies --
EPF and FFP -- signed off this week on a two-step capital increase, said the people, who asked not to be identified because the meetings were private. The family members’ support is crucial because together they control 25.5 percent of Peugeot’s capital and 38.1 percent of the voting rights.
Europe’s second-largest automaker announced last week that Dongfeng and the French government are looking at first contributing funds through a sale reserved for them, and then possibly participating in a broader rights offering after that.
The 118-year-old manufacturer is seeking a cash injection after burning through more than 4 billion euros in the last two years as auto demand in its European home region sank. The new funding is equal to 73 percent of Peugeot’s market value and follows a 2012 share sale to raise 1 billion euros in which General Motors Co. (GM) bought a 7 percent stake that it later sold.
“Now the main question is whether this whole deal will pass the vote of the shareholders,” said Philippe Houchois, a London-based automotive analyst at UBS AG. “Will the family be able to force the approval of the deal on the others?”
Peugeot needs the support of 66 percent of those attending the annual meeting to move forward with the capital increase, said Jean-Baptiste Thomas, a spokesman at the automaker.
The shares gained 14 cents, or 1.2 percent, to 11.51 euros at the close of trading today in Paris. The stock has surged 93 percent in the last year, valuing the French company at 4.1 billion euros.
Seven of 10 board members present at an EPF meeting on Jan. 27 voted in favor of the plan, one person said. The FFP board met the following day, with no one voting against the proposal, the person said.
Robert Peugeot, head of the listed FFP, and his cousin Thierry, who leads the carmaker’s supervisory board, have clashed over the direction to follow, the people said. Robert favors pulling back from the family’s reliance on the automaker, while Thierry wants to maintain as much control as possible of the company the family founded, they said.
Pierre-Olivier Salmon, a spokesman at Paris-based Peugeot, declined to comment on the progress of the planned capital increase and the family dispute.
Thierry is pushing an option in which Peugeot would raise the entire 3 billion euros by selling shares on the market without investments from Dongfeng or France, a person familiar said. JPMorgan Chase & Co. (JPM) has offered to fully underwrite a capital increase of that size, the person said.
“I’m worried about the strategy of pulling away from Peugeot SA that you seem to want to implement,” Thierry wrote in a letter to Robert dated Jan. 27. “I believe that the Peugeot family must continue to back Peugeot SA and not reduce its interest, and must participate as fully as possible in the capital increase announced by the group.”
Newspaper Les Echos posted the letter on its website today, accompanying a report on the divisions within the family and JPMorgan’s backing for a 3 billion-euro capital increase.
The automaker is currently moving forward with the first option and making progress in the talks with Dongfeng, the people said. Peugeot still aims to announce a definitive deal when it reports 2013 earnings on Feb. 19, they said.
“I still think they should have a long hard think about whether the family should be this involved in the business,” said Erich Hauser, a London-based automotive analyst at International Strategy & Investment Group. “Only at Peugeot do you seem to have this multitude of family members trying to protect their own interests.”
As part of the plan, the family will invest about 100 million euros to maintain a 14 percent stake, one person said.
Dongfeng and the French government would each contribute at least 750 million euros to also have holdings of about 14 percent apiece, a person familiar said last week. The automaker would then hold a rights issue of about 1.4 billion euros for the rest of the funding, the person said.
The plan will create a three-headed governance structure that will make running Peugeot difficult, Thierry said in his letter.
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