PSA/Peugeot-Citroen is considering a rights offering of 1 billion-euro or $1.34 billion in order to raise funds in line with an agreement with General Motors Co., several insiders disclosed. GM will purchase around 7% of the Paris-based vehicle manufacturer and will take part in the new share sale, according to the insiders who sought anonymity due to the confidentiality of the discussions.
The Peugeot family is the biggest stakeholder of the French company with 30% of the share. The family has expressed its intention to participate in the rights offer, one of the insiders revealed.
In addition, the planned alliance with GM includes a restructuring at the two companies, resulting in job reductions and factory closures, said another individual who is familiar with the talks. This person further disclosed that Peugeot and GM are still discussing the specifics and will not publicize them for several weeks or months because of political concerns in France.
PSA is the second largest vehicle manufacturer in Europe next to Volkswagen AG. This month, PSA announced its plan to put assets up for sale because debt increased more than double to 3.4 billion euros in the second half. GM and PSA are planning an alliance that could include manufacturing automobiles and engines together in the European region, an insider disclosed last week. GM is seeking to turn around its losing Opel brand in Germany.
According to London-based analyst Erich Hauser at Credit Suisse, the scenario signifies "just how bad" the situation must be for the two companies. The rights offering could dilute current shares by around 30%.
Hauser further stated that with the rights issue and the planned asset sales, "future earnings power is now fundamentally impaired on a permanent basis." PSA is valued at around 3.6 billion euros. GM and PSA declined to make a comment regarding the rights offer. According to one person, the two companies know that they need to cut factory capacity and jobs, and view the agreement as a way to get political support.