PSA reaches outline deal with Dongfeng and France over capital hike

Article by Anita Panait, on February 14, 2014

PSA/Peugeot-Citroen has reached an outline agreement with Dongfeng and the French government to raise up to EUR4 billion ($5.5 billion) in capital and deepen its relationship with the Chinese carmaker, sources privy with the matter told Reuters. The agreement will be presented to the PSA board on February 18 and will probably be signed as a non-binding memorandum of understanding the same day, according to three people having direct knowledge of the matter.

The accompanying industrial plan would entail PSA and Dongfeng retaining and expanding their existing joint venture in China while increasing their r&d cooperation with a view to penetrating southeast Asian markets, according to the sources.

PSA has been holding discussions with Dongfeng for months over a plan that would entail the Chinese carmaker and France taking equal stakes of about 14 percent each. Details of the deal include a heavily discounted EUR7.50 issue price for the two new shareholders.

One of the remaining matters in discussions is who to name as a new independent chairman. The French government is eyeing Louis Gallois for the post. Gallois is a senior civil servant who became a member of PSA’s board on a nominally independent ticket. Dongfeng, meanwhile, is eyeing French businesswoman Patricia Barbizet, another independent PSA director, for the post.

Under the terms of the agreement, PSA will raise EUR3 billion through the reserved share sale to Dongfeng and France and via a smaller, subsequent rights issue to existing shareholders. Current shareholders will also receive warrants to purchase additional stock at an equivalent price in a scheme designed to raise up to EUR1 billion more, one source said.

Topics: psa, dongfeng

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