PSA signed the Dongfeng deal image

In a move that would bring to end to the two centuries of Peugeot family control over PSA Peugeot Citroen, the troubled French carmaker has signed on the long reported capital increase deal with Chinese partner Dongfeng.

According to PSA, which is currently Europe’s second biggest carmaker, the company, Dongfeng and the French government have all signed – just as reported – a non-binding outline agreement, that would bring fresh capital of 3 billion euro ($4.1 billion) to PSA.

According to analysts, both the current Chief Executive Officer Philippe Varin and Carlos Tavarez, its designated successor still need to explain how the long debated tie-up will help PSA improve its position.

“Expectations are running high,” London-based ISI Group analyst Erich Hauser said in a note. “PSA (Peugeot) needs to show a new equity story to keep investors interested.”

Sources have disclosed that under the deal, Dongfeng and the French state will each bring around 800 million euros, which they will use to acquire 14% stakes in the automaker, in a reserved share sale and rights issue, with a preferential price of 7.50 euro a share – around 40% discounted from the current market valuation.

The remaining amount to the intended 3 billion euro ($4.1 billion) will be raised through warrants given at the same preferential price to the existing shareholders of PSA. Because of the deal, Peugeot’s family 25.4 % stake and 38 % of voting rights would be diluted to the same amount of Dongfeng and the French state – short of the one third necessary for veto rights.

Via Reuters