Peugeot dynasty ends reign with Dongfeng capital tie-up

Employees assemble cars at a production line of Dongfeng Peugeot Citroen Automobile factory in Wuhan, Hubei province, China. PSA Peugeot Citroen agreed to a capital tie-up with China’s Dongfeng and the French state yesterday, ending the reign of one of France’s oldest industrial dynasties.

AFP/Paris

PSA Peugeot Citroen agreed to a capital tie-up with China’s Dongfeng and the French state yesterday, a source said, ending the reign of one of France’s oldest industrial dynasties.

In the latest buy-in of a Chinese giant to a struggling Western firm, the source close to the deal said Peugeot’s board approved an agreement for Dongfeng and the French government to each inject €800mn ($1.1bn) for 14% stakes in the company.

The total fundraising effort could bring in at least €3bn through the sales of additional shares.

Full details of the deal are to be released early today along with Peugeot’s 2013 results.

The Peugeot family — which has controlled the firm since its founding in 1810 as a maker of coffee mills and bicycles — will see its 25% stake and 38% voting rights diluted to the same amount as the stakes for the government and Chinese state-controlled Dongfeng.

The deal will come to Peugeot’s rescue after the group, Europe’s second-largest carmaker, suffered the indignity of needing €7bn in state-guaranteed refinancing to rescue its credit arm.

Peugeot has been among the hardest hit by a European slump in car sales, suffering a €5bn loss in 2012 and cutting thousands of jobs.

For China, where Dongfeng is the second-biggest automaker, the agreement marks the latest high-profile acquisition by the economic powerhouse of a Western company.

Last month, Chinese tech giant Lenovo bought Motorola from Google in $2.9bn deal.

Under the Peugeot deal, the family will see its number of board seats reduced from four to two, with Thierry Peugeot expected to lose his post as chairman.

None of the three main shareholders would be allowed to increase its stake for 10 years — seen as an effort to limit Dongfeng’s influence at Peugeot, which employs nearly 90,000 people in France.

The final deal is expected to be signed at the end of next month during a visit by Chinese President Xi Jinping to Paris.

The source said the Peugeot board also agreed a tie-up between its financing arm and Spanish bank Santander to begin at the end of 2016 when state-guaranteed funding expires.

It as well approved the appointment of former Renault executive Carlos Tavares as the new CEO to replace Philippe Varin, the man often blamed for guiding the company into its current turmoil, the source said.

Last year, a government-ordered enquiry found that Peugeot had made strategic mistakes for years by not seizing fully the opportunities of globalisation.

Peugeot is set to release its results for 2013 early today, after it took a series of cost-cutting measures aimed at saving 1.5bn euros, including closing its iconic Aulnay-sous-Bois factory near Paris.

The company is hoping the link with Dongfeng will give it a boost in China, which is now the group’s number two market behind France and where it operates three joint factories.

State-owned Dongfeng Motor Corp, founded in 1969 and whose name means “East Wind”, sold 3.53mn vehicles in China in 2013, giving it a 16% market share.

Industrial Renewal Minister Arnaud Montebourg said the state’s decision to buy in to Peugeot was important to France’s economic future.

“We have taken a decision of economic and industrial patriotism, with commitments taken by management,” Montebourg said.

He said Peugeot had committed to producing amn vehicles a year in France by 2016 and investing 1.5bn euros in French factories.

- ‘It saves our bacon’ -At Peugeot’s historic Sochaux plant in the eastern Franche-Comte region, workers welcomed the reorganisation but expressed fears the deal would eventually see their jobs relocated to China.