PSA Peugeot Citroen, Europe’s second-biggest carmaker, agreed to sell 75 percent of the Gefco trucking unit to OAO Russian Railways for 800 million euros ($1.04 billion) to help reduce debt.
Peugeot will also receive a special dividend of 100 million euros from Gefco as part of the deal, the Paris-based company said in a statement today. Final agreement with the state-owned Russian company is still dependent on regulatory approval, and the two sides aim to close the deal by the end of the year, Jean-Baptiste Mounier, a Peugeot spokesman, said.
“Peugeot still burns about 100 million euros in cash per month, so this could help them live for about eight months,” said Xavier Caroen, a Kepler Capital Markets SA analyst with a buy rating on the shares.
Peugeot is facing increasing pressure from ratings services as the junk-rated carmaker grapples with industrywide overcapacity in Europe and losses at its automotive division. The automaker’s debt was lowered to three levels below investment grade by Fitch Ratings yesterday.
Peugeot dropped as much as 10 cents, or 1.5 percent, to 6.76 euros and traded at that level as as of 9:08 a.m. in Paris. The shares have dropped 36 percent this year, valuing the carmaker at 2.41 billion euros.
The two other main rating services cut the carmaker’s long-term debt two levels below investment grade in July after the manufacturer reported a 662 million-euro first-half loss at its automaking unit. Peugeot said at the time it had burned through 200 million euros in cash per month for the last year.
Peugeot announced plans in February to sell assets, including a stake in Gefco, to raise cash. Russian Railways Chief Executive Officer Vladimir Yakunin said this week that the bid for Gefco is part of an effort to follow competitors such as Berlin-based Deutsche Bahn AG in establishing a logistics arm alongside train and infrastructure operations.
The 116-year-old French manufacturer plans to cut 8,000 jobs and close its factory in Aulnay on the outskirts of Paris to reduce costs. Peugeot issued 1 billion euros in new shares this year to investors and has sold a stake to General Motors Co. to raise cash.
The deal will help Gefco grow in areas such as China, India and Latin America, Peugeot said in its statement. The partnership also allow the trucking company to expand in eastern and central Europe, particularly in Russia, it said. The current Gefco management, led by CEO Luc Nadal, will not be changed and the headquarters will remain in France.
Gefco, founded in 1949 by Peugeot, reported a 6.7 percent decline in first-half revenue to 1.88 billion euros, while operating profit dropped 56 percent to 63 million euros. Gefco employs 10,300 people in 32 countries, according to its website.
GM and Peugeot announced an agreement on July 2 to transfer the majority of the Detroit-based company’s logistics business in Europe to Gefco as part of an industrial alliance the two carmakers began setting up in February.
In addition to Peugeot and GM, other Gefco customers include carmakers Bayerische Motoren Werke AG, Ford Motor Co. and Renault SA’s Dacia brand, as well as cosmetics producer L’Oreal SA and appliance manufacturer Royal Philips Electronics NV, said Pascale Van der Vliet, a spokeswoman at the unit. The automotive industry, including suppliers, accounts for 60 percent of revenue, she said.