PARIS--The board of PSA Peugeot Citroën SA has approved the
broad outline of a possible EUR3 billion capital increase that
would reshape the car maker's ownership, and result in Chinese
partner Dongfeng Motor Co. and the French state becoming leading
shareholders, a person familiar with the matter said.
Following a nearly five-hour meeting that dragged late into the
evening on Sunday, board members gave chief executive Philippe
Varin a mandate to start more formal talks with Dongfeng and the
French government, the person said.
At stake is how to provide the loss-making company with the
financial means to pursue the heavy industrial, R&D and
commercial investment that it needs to ensure its future and
bolster its presence in overseas markets.
The central scenario under discussion calls for Dongfeng Motor
Co. and the French state to stump up between a third and half of
the necessary amount, according to people familiar with the
negotiations.
The Peugeot family, the group's largest shareholder with a 25.4
% stake, would spend between EUR80 million and EUR120 million to
buy some of the newly-issued shares, and avoid being diluted too
much, these people said.
The company would make an additional public rights issue to make
up the required amount, they said.
Upon completion of the transaction, Dongfeng, the state and the
family would hold roughly equal stakes, they added.
Sunday's board means Dongfeng, the French government and the
Peugeot family must now formally agree on the scope of the overall
capital increase, the size of the Dongfeng and French government
investments, and the amount of the Peugeot family share
purchase.
Some Peugeot family members, notably group Chairman Thierry
Peugeot, would like to avoid relying on Dongfeng and the French
state, and instead raise the necessary EUR3 billion entirely
through a public rights issue, the people familiar with the matter
said.
But many Peugeot executives and board members are concerned that
investors, despite a recent rally on stock markets, may not have
the stomach for a large rights issue, especially by a company that
keeps bleeding cash quarter on quarter, the people said.
A spokesman for Peugeot declined to comment on what was
discussed during Sunday's board meeting.
Dongfeng couldn't be immediately reached for comment. The
company has said it was considering deepening its tie-up with
Peugeot but hasn't provided details. The two companies have a
long-established industrial and commercial cooperation.
French Finance Minister Pierre Moscovici said in a radio
interview on Sunday that the government would do everything in its
power to ensure that Peugeot remains rooted in France.
Last week, French President François Hollande said that his
government had money to finance an investment in Peugeot should the
car maker call for help.
"If we are solicited, we will take action," Mr. Hollande said at
a news conference in Paris.
Write to David Pearson at david.pearson@wsj.com
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