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Cautious Dongfeng seeks smaller stake in PSA; talks hit snag
2013-11-21 08:13:22 Source:Bloomberg Browse 14996 Secondary

PSA Peugeot Citroen''''s plan to raise funds through a share sale have hit a snag as Dongfeng Motor Corp. seeks a smaller stake than first discussed, people familiar with the matter said.

Dongfeng is considering a 10 percent share of PSA, half the size of the original proposal, sources said.

The Chinese company is more interested in expanding an existing joint venture than buying a stake, they said.

Initially, PSA proposed a capital increase of at least 3 billion euros (25 billion yuan), in which Dongfeng and the French state would take equal stakes of about 20 percent, sources said last month.

PSA, whose automotive unit reported a first-half operating loss of 510 million euros, wants to raise funds for product development and expansion outside Europe, where sales are at a two-decade low.

Big problems
"Peugeot''''s issues today are so global that having Dongfeng buying 10percent of its shares won''''t change anything," said Florent Couvreur, an analyst at CM-CIC Securities in Paris who recommends selling the shares.

"Peugeot has to deal with restructuring its European activities; its synergies with GM, which are non-existent; the inconsistency of its product range and its huge operational problems."

A smaller Dongfeng stake would potentially give the state, which wants to protect jobs in France, greater influence over the company.

Some in the Peugeot family, which owns 25.5 percent, are concerned about the French government''''s increased influence. They want guaranteed board seats or other protections as a counterweight after a capital increase likely dilutes their holding, the people said.

Another option: PSA could sell its 57 percent stake in Faurecia SA.
Magna International Inc. and other suppliers have shown interest in the French supplier, sources said. Thus far, PSA has said it intends to keep its stake.

PSA spokesman Pierre-Olivier Salmon declined to comment.

Magna spokeswoman Tracy Fuerst did not immediately respond to requests for comment. Dongfeng did not respond to a request for comment.

Dongfeng and PSA already operate three factories together in China, with annual production capacity set to rise by two-thirds to 750,000 vehicles by the end of 2015.

The share sale is progressing more slowly than planned as Dongfeng, the French government and Peugeot''''s controlling family bargain over the size of their eventual holdings.

A final agreement is not expected until the end of the year at the earliest.

Peugeot family members are at odds with one another over how best to secure the automaker''''s future. The family also clashed with the French government last month after a state official went to China to discuss PSA''''s fate without telling the family or the carmaker.

Louis Gallois, the state''''s PSA board representative, now acts as the main conduit for negotiations between the family and government.

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