Peugeot Said to Consider Selling Stake to Dongfeng Motor

PSA Peugeot Citroen, Europe’s second-biggest carmaker, is considering selling a stake to Chinese automaker Dongfeng Motor Corp. to raise cash for expansion outside its home continent, two people familiar with the matter said.

The talks are at a preliminary stage and nothing has been decided yet, said the people, who asked not to be identified because the talks are private. The stake sale could lead the Peugeot family, which currently owns 25.5 percent of the shares, to lose control of the French company, the people said.

Peugeot, which reported a first-half operating loss in its automotive unit of 510 million euros ($681 million), is losing market share in Europe to Volkswagen AG, the continent’s largest automaker. To push expansion elsewhere, Paris-based Peugeot already has a partnership with Dongfeng. They opened their third joint assembly plant in July to produce four models in China.

“Their structural shortcoming is: ‘we don’t sell out of Europe,’” said Erich Hauser, a London-based analyst at International Strategy & Investment Group who recommends buying Peugeot shares. “If you’re the owner of the business or the CEO, and if you think about how to stabilize the business in the next 10 years, you need to get into emerging markets and get a partner.”

Jean-Baptiste Thomas, a Peugeot spokesman, and Zhou Mi, a spokesman for Wuhan, China-based Dongfeng, declined to comment.

Stock Rises

Peugeot gained 1 percent to 12.44 euros at the close in Paris. The stock has more than doubled this year, valuing the company at 4.41 billion euros.

“We shouldn’t be resistant to change, especially given the difficult situation we are in,” Serge Maffi, leader of the GSEA union at Peugeot, said by phone. “Things have changed in the car industry, and we need to adapt to the new environment.”

Chief Executive Officer Philippe Varin has pledged to cut the manufacturer’s cash-consumption rate by 50 percent in 2013 after burning through 3 billion euros last year. He plans to eliminate 11,200 jobs in France by 2015 and close a car plant in Aulnay, on the outskirts of Paris.

GM’s Holding

The French manufacturer also has a partnership with Detroit-based General Motors Co. to develop vehicles and procure parts together to reduce costs.

GM, which owns the Opel and Vauxhall brands in Europe and is struggling to become profitable in the region, bought a 7 percent stake in Peugeot last year as part of the alliance. It now ranks second as an investor in the French company, after the founding family.

“If we seal another partnership just two years after the one announced with GM, we’ll have many questions to ask management about it,” Pierre Contesse, FO union deputy leader at Peugeot, said in a phone interview.

Peugeot and GM have started their first joint purchasing negotiations, the French company said earlier this month.

The agreement with Dongfeng “could trigger a divorce from Opel and stop what has been done so far,” Gaetan Toulemonde, an analyst at Deutsche Bank, said in a research report today.

Johan Willems, a GM spokesman, declined to comment in an e-mail today.

Bank Advisers

Peugeot hired two banks to examine options to deepen ties with Dongfeng, Les Echos said on its website late yesterday in a report on the possible stake sale to the Chinese company.

The French carmaker will have four factories in China by the end of year. The first three, under the venture with Dongfeng, are in Wuhan, capital of the central province of Hubei. The most recent plant was inaugurated in July and will increase the company’s annual production capacity in China by two-thirds to 750,000 vehicles by the end of 2015.

A separate joint venture with Chang’An Automobile Group is scheduled to open Peugeot’s fourth Chinese factory in the southern city of Shenzhen at the end of the month. The first vehicle produced at the plant will be the Citroen brand’s DS5 executive compact.

Peugeot has a target of reaching a 5 percent market share in China by 2015. The strategy to win customers includes starting sales of the new Peugeot 308 hatchback and 2008 crossover in the country next year. First-half deliveries with Dongfeng rose 33 percent to nearly 277,000 vehicles, Peugeot said in July.

Before it's here, it's on the Bloomberg Terminal.