Peugeot Plans an Alliance with GM From Which to Raise $1.34 Billion image

PSA Peugeot Citroën SA plans an alliance with General Motors Co. from which to raise about $1.34 billion, propping up their unprofitable operations in Europe.

The companies rely on the so-called rights issue, which is a common means for European companies to raise money, involving the sale of shares to existing investors. As part of the share sale, GM is to take about 7% stake in Peugeot, which would worth around €250 million based on Peugeot’s market capitalization of €3.58 billion.

Peugeot owns 30.3% of the auto maker’s stock but holds 46.26% of the voting rights, so it will take part in the rights issue. The announcement about the possible alliance between the companies may come as early as Wednesday 29th February. The main stage for the alliance would be Europe, but other regions are envisioned too. For GM this alliance means the opportunity to access technology and, potentially, entire vehicles less costly than if it were to develop them itself.

GM has more than $30 billion in liquidity and a move to invest in a struggling European auto maker could be controversial for the company, which is 26.5% owned by the U.S. government. Investors tried to get an explanation from GM as to how it would benefit, according to Wall Street bankers who handle GM accounts.