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Chinese Automaker and French Government to Invest in Peugeot Chinese Automaker and French Government to Invest in Peugeot
(about 1 hour later)
PARIS — Dongfeng Motor, one of China’s biggest car companies, and the French government will become major shareholders in PSA Peugeot Citroën, the largest French automaker, the companies said on Wednesday, in an alliance that will bring an injection of 3 billion euros in new capital to the French firm.PARIS — Dongfeng Motor, one of China’s biggest car companies, and the French government will become major shareholders in PSA Peugeot Citroën, the largest French automaker, the companies said on Wednesday, in an alliance that will bring an injection of 3 billion euros in new capital to the French firm.
Peugeot said the capital increase, worth $4.1 billion, would be used for increasing its footprint in China and Southeast Asia, and would result in cost savings of about €400 million a year by early in the next decade. Peugeot also said the deal would reinforce its European business by helping the company finance strategic investments and pay down high-interest debt.Peugeot said the capital increase, worth $4.1 billion, would be used for increasing its footprint in China and Southeast Asia, and would result in cost savings of about €400 million a year by early in the next decade. Peugeot also said the deal would reinforce its European business by helping the company finance strategic investments and pay down high-interest debt.
The Peugeot family currently holds 25.4 percent of the company’s shares. As part of the deal, it will reduce its stake to 14 percent, paving the way for the French government and Dongfeng to each take 14 percent stakes for about €800 million each, buying shares at a 40 percent discount to the closing price on Tuesday. There will be an offering to the company’s existing shareholders at the same discounted rate, bringing the total capital increase to about €3 billion.The Peugeot family currently holds 25.4 percent of the company’s shares. As part of the deal, it will reduce its stake to 14 percent, paving the way for the French government and Dongfeng to each take 14 percent stakes for about €800 million each, buying shares at a 40 percent discount to the closing price on Tuesday. There will be an offering to the company’s existing shareholders at the same discounted rate, bringing the total capital increase to about €3 billion.
Ranked by sales, the French group is the second-largest automaker in Europe, behind Volkswagen, and employs more than 200,000 people worldwide, including about 90,000 in France. But it has been losing market share to VW and to its French rival, Renault, and its heavy dependence on the European market left it hemorrhaging money as that market took a sharp downturn after the financial crisis.Ranked by sales, the French group is the second-largest automaker in Europe, behind Volkswagen, and employs more than 200,000 people worldwide, including about 90,000 in France. But it has been losing market share to VW and to its French rival, Renault, and its heavy dependence on the European market left it hemorrhaging money as that market took a sharp downturn after the financial crisis.
The announcement came as Peugeot on Wednesday reported 2013 sales in its automotive division of €36.5 billion, down 4.8 percent from a year earlier, and said the division’s operating loss narrowed to €177 million from €1 billion.The announcement came as Peugeot on Wednesday reported 2013 sales in its automotive division of €36.5 billion, down 4.8 percent from a year earlier, and said the division’s operating loss narrowed to €177 million from €1 billion.
Shares of Peugeot rose 1.4 percent in midday trading in Paris, having earlier reached more than 4 percent, while Dongfeng stock fell more than 1 percent in Hong Kong. It reduced the amount of cash it burned through last year to €426 million from €3 billion. The operating loss and cash flow figures were both better than analysts had expected.
Peugeot also announced that it has secured a renewed credit line of €2.7 billion from a syndicate of banks, giving it an additional source of funds to draw on to finance its activities.
Shares of Peugeot had risen more than 3 percent in afternoon trading in Paris, having earlier risen by more than 4 percent. Dongfeng stock fell more than 1 percent in Hong Kong.
Peugeot also announced that Carlos Tavares, the former No. 2 at Renault, was taking over from Philippe Varin as Peugeot’s chief executive, effective March 31.Peugeot also announced that Carlos Tavares, the former No. 2 at Renault, was taking over from Philippe Varin as Peugeot’s chief executive, effective March 31.
The company said it was entering into exclusive negotiations with Banco Santander of Spain to create a partnership for Banque PSA Finance, Peugeot’s junk-rated consumer finance business, which is dependent on €7 billion of credit guarantees from the French Finance Ministry.The company said it was entering into exclusive negotiations with Banco Santander of Spain to create a partnership for Banque PSA Finance, Peugeot’s junk-rated consumer finance business, which is dependent on €7 billion of credit guarantees from the French Finance Ministry.
Dongfeng, based in the city of Wuhan, has had a partnership with Peugeot since 1992; Peugeot’s market share in China last year was 3 percent. The new deal allows Dongfeng, hardly a household name outside of its home country, the opportunity to take its first steps on the global stage, while it gains access to Peugeot’s technology and to its European distribution network. Dongfeng, based in the city of Wuhan, has had a partnership with Peugeot since 1992. The new deal allows Dongfeng, hardly a household name outside of its home country, the opportunity to take its first steps on the global stage, while it gains access to Peugeot’s technology and to its European distribution network.
But Benjamin Asher, an Asia auto market analyst in the Bangkok office of LMC Automotive, a global consulting firm, said the deal would not give Dongfeng the truly global reach that the world’s largest automakers seek to achieve. “Outside of Western Europe, it is only in China, Iran, Brazil and Argentina that Peugeot achieves notable volumes,” he said. “They have no volumes at all in some key global markets like the U.S. and India.” But Benjamin Asher, an Asia auto market analyst in the Bangkok office of LMC Automotive, a global consulting firm, said the deal would not give Dongfeng the truly global reach that the world’s largest automakers seek to achieve. “Outside of Western Europe, it is only in China, Iran, Brazil and Argentina that Peugeot achieves notable volumes,” he said (Peugeot’s market share in China last year was 3 percent). “They have no volumes at all in some key global markets like the U.S. and India.”
Buying a modest stake in Peugeot is consistent with Dongfeng’s broader approach of keeping a fairly low profile and mostly serving as the legal Chinese partner for joint ventures with multinationals, which are almost never allowed more than 50 percent ownership of assembly plants in China. Despite pressure from the Chinese government for Chinese automakers to begin designing, engineering, building and marketing their own brands of cars, Dongfeng has done very little of any of that. It has shown few designs at auto shows, while its joint venture partners, Nissan and Peugeot, have taken prominent roles in managing their activities with Dongfeng. Buying a modest stake in Peugeot is consistent with Dongfeng’s broader approach of keeping a fairly low profile and mostly serving as the legal Chinese partner for joint ventures with multinationals, which are almost never allowed more than 50 percent ownership of assembly plants in China. Despite pressure from the Chinese government for Chinese automakers to begin designing, engineering, building and marketing their own brands of cars, Dongfeng has done very little of any of that. It has shown few designs at auto shows, while its joint venture partners, Peugeot, Nissan, Honda and Kia, have taken prominent roles in managing their activities with Dongfeng.
The measures announced on Wednesday “open a new page in the history of PSA Peugeot Citroën,” Thierry Peugeot, the automaker’s chairman, said in a statement. “By reinforcing its financial solidity whilst outlining perspectives for an ambitious international development, these measures will contribute to the long term future of the group as well as its future growth which will benefit the group’s clients, employees, shareholders and all its partners.”The measures announced on Wednesday “open a new page in the history of PSA Peugeot Citroën,” Thierry Peugeot, the automaker’s chairman, said in a statement. “By reinforcing its financial solidity whilst outlining perspectives for an ambitious international development, these measures will contribute to the long term future of the group as well as its future growth which will benefit the group’s clients, employees, shareholders and all its partners.”
Still, analysts, having watched General Motors recently write off its own €1 billion investment in Peugeot, have been quite skeptical of the prospect that the company will fare better by becoming partners with the French government and a Chinese company with no international experience.Still, analysts, having watched General Motors recently write off its own €1 billion investment in Peugeot, have been quite skeptical of the prospect that the company will fare better by becoming partners with the French government and a Chinese company with no international experience.
Adding to the potential bureaucracy and confusion that could result from the tripartite ownership structure, Dongfeng in December announced an agreement to make 150,000 crossover vehicles a year with Renault, the No. 2 French automaker.Adding to the potential bureaucracy and confusion that could result from the tripartite ownership structure, Dongfeng in December announced an agreement to make 150,000 crossover vehicles a year with Renault, the No. 2 French automaker.