Report – PSA’s board approves 3.5 billion euro capital hike and Dongfeng deal image

A source familiar with the matter told Reuters that PSA Peugeot Citroen’s board has approved a plan for an alliance with Dongfeng in which the Chinese carmaker and the French state would buy large minority stakes at a 40 % discount to Peugeot’s current share price. The board also approved in principle a 3.5 billion euro capital increase.

The proposed deal, which has not yet been finalized, involves a rights issue and a reserved capital increase which would be priced at below 7 euros per share (Peugeot’s shares closed at 11.50 euros on Wednesday), the source said, adding it was approved at a special Peugeot board meeting held on Tuesday.

The board agreed to enter final negotiations on a 3.5 billion euro ($4.8 billion) share issue that would see France and Dongfeng Motor Group take matching 20 % holdings, said the source, speaking on condition of anonymity. The company also aims to finalize the capital increase in January or February of 2014.

The hefty discount on the proposed deal, approved by Peugeot’s board on Tuesday, reflects worsening conditions and currency headwinds since the company pledged to halve its cash burn to 1.5 billion euros this year, the source also said.

A spokesman for Peugeot declined to comment on the alliance talks. Dongfeng officials could not be reached after hours in Wuhan, China. The French government also declined to comment.

Via Reuters