Peugeot Begins Stock Sale After Dongfeng Purchases Stake

PSA Peugeot Citroen, Europe’s second-biggest carmaker, said it’s offering stock to investors at 6.77 euros a share after selling stakes to Chinese partner Dongfeng Motor Corp. and the French state to fund a turnaround.

Buyers have already committed to purchasing 36 percent of the stock available in the 1.95 billion-euro ($2.7 billion) rights offer, part of a 3 billion-euro capital increase, Paris-based Peugeot said today in a statement. Dongfeng and France separately bought about 1.05 billion euros of new stock and will acquire more in the wider sale, with a target of accumulating stakes of 14 percent each.

Peugeot is teaming up with Chinese carmaker Dongfeng to expand outside Europe, where demand is recovering from a two-decade low. Chief Executive Officer Carlos Tavares, who took over a month ago, is also working to reduce costs while focusing on more profitable models. The stock is being sold at less than the 7.50 euros a share that Dongfeng and France are paying.

“It’s a lower subscription price than I would have thought,” given the larger investors’ commitment, Erich Hauser, a London-based automotive analyst at International Strategy & Investment Group, said by phone. “It could just be that the banks said: ‘I’m not sure if I can sell all the shares at 7.50 but I’m sure I can sell them all at 6.77.’”

Shares Fall

Peugeot fell 2.4 percent to 12.73 euros in Paris trading. That pared the stock’s gain this year to 35 percent, valuing the carmaker at 6.29 billion euros. The shares traded today without the right to warrants that Peugeot said earlier this year would be issued in a 770 million-euro sale at a ratio of one warrant per existing share. Those securities cost 1.59 euros each today.

Tavares outlined plans in mid-April to scale back the carmaker’s lineup by almost half, to 26 models by 2022 from 45 vehicles now, and turn the Citroen brand’s DS badge into a separate division for premium autos. The strategy includes what Peugeot called an “aggressive” push into China, the world’s largest auto market, where the company already operates three factories jointly with Wuhan-based Dongfeng.

“They need a lot of money, especially for the new developments in China with Dongfeng,” Ferdinand Dudenhoeffer, director of the Center for Automotive Research at the University of Duisburg-Essen in Germany, said by phone. “If they can make it, it’s a sound road for the future.”

New Chairman

The stake reorganization brings to an end the Peugeot founding family’s control of the 118-year-old carmaker, with the relatives’ holding falling to 14 percent from 25.5 percent. Dongfeng, the French government and the family will each get two seats on the Peugeot board.

The carmaker’s supervisory body met today and elected Louis Gallois, the former head of the corporate forerunner of Airbus Group NV and of French state railway SNCF, as its new chairman, the company said in a statement. Gallois, 70, is the first-ever chairman from outside the founding family.

The investments by Dongfeng and the French government come a little more than two years after Peugeot sold a 7 percent stake to Detroit-based General Motors Co., which disposed of the holding after 21 months when savings from cooperation failed to live up to expectations.

Peugeot reported a 177 million-euro operating loss in 2013, its second unprofitable year in a row, as the European auto market reached a two-decade low following a six-year contraction. The French carmaker responded by cutting production and jobs to reduce costs while adding models such as the 2008 crossover to attract customers.

Cash Flow

Cash consumption was cut 86 percent to 426 million euros last year, and the company said in February that it’s planning on positive operational free cash flow by 2016 at the latest.

First-quarter revenue rose 1.9 percent to 13.3 billion euros as deliveries jumped 16 percent in Europe and 18 percent in China, Peugeot said on April 25.

The lower price for the rights offer “is further negative news for Peugeot, following an underwhelming ‘Back in the Race’ presentation on April 14 and disappointing first-quarter revenue last week,” Mike Dean, a London-based analyst at Credit Suisse Group AG, said in an e-mail.

Investors can apply to buy seven new shares for every 12 shares already held, Peugeot said. The subscription period will be May 2 to 14, with the new stock entering trading May 23.

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