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http://www.reuters.com/article/2014/02/19/us-peugeot-dongfeng-idUSBREA1I0JA20140219

PSA Peugeot Citroen's new boss promised a back-to-basics turnaround as the troubled carmaker unveiled a French-backed rescue deal with China's Dongfeng on Wednesday, along with another multibillion-euro loss.

Incoming CEO Carlos Tavares said he saw "huge room for improvement" as Peugeot announced a 3 billion euro ($4.1 billion) fundraising that brings new leadership, more time to recover and an end to two centuries of family control.

Dongfeng Motor Group and the French state will each pay 800 million euros for 14 percent of the carmaker to match the founding Peugeot family's reduced holding, Peugeot said, confirming earlier Reuters reports.

While the deal marks the end of an era, with Thierry Peugeot stepping down as the dynasty's last chairman, it may also clear the decks for a deep review of the group's business practices and corporate culture.

"It's a return to fundamentals," Tavares said from a podium shared with outgoing CEO Philippe Varin.

"Our challenge is to be the best of the Europeans in terms of (our) manufacturing and distribution model, which frankly is not the case today," he told analysts and reporters.

Peugeot will source parts more competitively, accelerate the development of Citroen's premium DS line into a standalone brand and drop some of the group's current 60 models to cut costs and improve pricing, he said.

The former No.2 to Renault boss Carlos Ghosn also promised measures to tame Peugeot's losses in Latin America and Russia, to be unveiled with a new mid-term plan in April.

While at Renault, Tavares was credited with narrowing the pricing gap with European market leader Volkswagen.

"He comes with a very good track record and seems already to have identified clear areas of improvement by benchmarking Peugeot against Renault-Nissan," said Stuart Pearson, a London-based analyst with Exane BNP Paribas.

Peugeot is currently being kept afloat by a 7 billion euro state guarantee to its car loans arm, but that expires next year. Along with the Dongfeng deal, the company announced plans for a lending venture with Banco Santander in the region.

It also posted a 2.32 billion euro ($3.2 billion) net loss and warned on Wednesday it may not stem the red ink until 2016, a year later than initially promised.

Peugeot shares closed down 1.5 percent at 12.31 euros, after coming off gains of more than 9 percent earlier in the day.

NEW LEASE OF LIFE

Under family control, insiders say Peugeot has been slow to adapt to competitive threats, missing opportunities to deepen partnerships with BMW, Fiat, Toyota and Mitsubishi Motors.

The firm will now use its new capital to catch up in hybrids, low-cost cars and Mediterranean markets where it lags behind the likes of Renault-Nissan and Toyota, Chief Financial Officer Jean-Baptiste de Chatillon said.

"Everything is in place to give Peugeot a new lease of life as a major international carmaker," Chatillon said. "We have the products, the teams, the know-how, and now we have a new balanced and stable ownership."

Under their framework deal, Peugeot and Dongfeng pledged to expand their existing joint venture with new models and a sales target of 1.5 million vehicles for 2020, generating 400 million euros of savings for the French partner.

The alliance will also create a major new research and development center in China and a sales venture to export their cars to other Southeast Asian markets, the companies said.

Peugeot will raise 1.05 billion euros in an initial share sale to Dongfeng and the French state at 7.50 euros - a 40 percent discount to the market price. Both will then subscribe to a rights issue backed by banks to raise another 1.95 billion euros, including 150-250 million from the Peugeot family.

Current shareholders will receive warrants allowing them to buy additional stock, raising up to 770 million euros more.

As a result, Dongfeng, France and the Peugeot family will each have two board seats, according to a summary of their shareholder agreement published by the Chinese carmaker. The Peugeot board is "expected to be chaired by an independent member", it said.

POTENTIAL HEADACHE

But in an early sign of potential governance headaches inherent in Peugeot's new "three-headed" ownership, France made clear there was no consensus on the chair nomination as it pushes senior civil servant Louis Gallois as its own candidate.

"There will be a discussion between the shareholders," Industry Minister Arnaud Montebourg said, adding it was "too early to say" whether the chairman would be independent.

Ministers have also been quick to rule out any factory closures, further to last year's scrapping of Peugeot's Aulnay plant near Paris. But the carmaker confirmed plans on Wednesday to reduce its Poissy and Mulhouse sites to one production line each as it trims excess capacity.

Tavares, whose appointment was announced in December but takes over the operational leadership only this week, will have to tread a fine line between boardroom politics and business priorities.

Peugeot on Wednesday said it may not return to positive cash flow until 2016, a year later than initially promised in a recovery plan unveiled two years ago, but earnings also showed signs that the company may soon bottom out.

The firm's operations ran through 426 million euros in cash before restructuring, beating its goal of cutting the previous year's 3 billion cash burn by half.

Its net loss was cut by more than half from the 5-billion-euro loss recorded in 2012 after heavy writedowns, with the core auto division's operating loss narrowing 30 percent to 1.04 billion euros.

That was, however, offset by currency effects and rising costs on its debt load, which increased by about 1 billion euros to 4.15 billion.

Peugeot said it had 6.6 billion in cash reserves as of December 31 and had renewed a 2.7 billion euro credit line with nine banks for up to five years.

The Santander venture will replace Peugeot's French state guarantees and lead to the deconsolidation of its lending division, whose 368 million euro profit narrowed the group operating loss to 177 million last year, the company said.
 

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Dongfeng deal ends more than a century of Peugeot Family Control

The Peugeot family infighting basically ran the company into the ground and they ran out of options. The only one willing to pony up the cash was Dongfeng, but Peugeot family had to give up control and allow Dongfeng to pillage its technology, platforms, and intellectual properties. The combined Dongfeng-PSA company will leapfrog several others and probably be in the top 5 car makers.

http://online.wsj.com/news/articles/SB10001424052702303491404579390670728850890

Wall Street Journal said:
PARIS—In the end, France's Peugeot family lost control by holding the steering wheel too tightly.

The decision Tuesday by the board of PSA Peugeot Citroën to approve a deal giving China's Dongfeng Motor Corp. and the French government stakes in the French auto maker will end more than a century of control by the family, a conservative French clan that hung onto its eponymous company through two world wars and an oil crisis—but was in the end unable to adapt quickly enough to a fast-globalizing auto business.

In recent decades, as the car business raced toward global economies of scale, the Peugeot family has invested billions in stock buybacks to keep its vote control, rather than pursuing transformative alliances that might have helped the car maker compete. The Peugeots, for instance, considered but eventually balked on deeper alliances with companies like Mitsubishi Motors Corp. and BMW AG, according to people familiar with the matter.

Internally, the strategy has led to years of feuding between two key Peugeot cousins. On one side, the banker-friendly Robert Peugeot—who runs a company with other family investments—has pitched openness to new investors. But Thierry Peugeot, the buttoned-up chairman, has instead devoted his life to safeguarding the family legacy, according to people who know him, often spending weekends at his house near the company's old headquarters in Sochaux, in eastern France, where Peugeot maintains a company museum.

"We're extremely attached to this company, and I am personally," said Thierry Peugeot in a brief interview last year.

Founded in the 19th century near the Swiss border, Peugeot's automobile business was initially born out of family strife too. It was Armand Peugeot who in 1896 first split off from the family-owned maker of pepper mills and bicycles to create automobiles under the same name. His cousin Eugene was hostile to the idea. It wasn't until 1910 that the two companies remerged.

In World War I, the company turned to arms production, like many industrial giants at the time. In World War II, the company's main factory was captured by Nazi German forces. But the family gave the green light for workers to sabotage German production, and was allowed to remain independent after the war, according to family biography "The Peugeots: Two Centuries of Adventure."

Peugeot continued to grow, taking control of well-known car maker Citroën in 1976. But a similar acquisition of Chrysler's European business soon thereafter proved more difficult. The losses almost swamped the company—and it was only the launch of the popular hatchback dubbed the 205 that helped save the family business in the 1980s.

In recent years, Peugeot's approach to alliances was more piecemeal than some European rivals—making engines with one company, electric cars with another. Even the company's ill-fated alliance with General Motors Co., which was partially scrapped by the two companies last year, was viewed with skepticism by some in the family, according to people familiar with the matter.

By last summer, the writing was on the wall for family control, some people close to the business said, even if the eventual deal was far from clear.

The agreement with Dongfeng and the French government will dilute the family's stake to about 14% from over 25% now. What's more, they will also lose their double voting rights that gave them 38.1% of the company's voting rights.

It will likely result in another sea change too: Thierry Peugeot will no longer head the auto maker's board, according to people familiar with the matter.

There is still no agreement among Peugeot's board on who the next chairman should be.
http://www.ft.com/cms/s/7bc33a6a-98...amily-Control&highlight=peugeot#axzz2tnN8XSob

Financial Times said:
Lossmaking Peugeot confirms €3bn deal with Dongfeng and France


By Michael Stothard in Paris and Henry Foy in London

Peugeot is in talks with Dongfeng over a potential capital increase

PSA Peugeot Citroën on Wednesday confirmed its deal to raise €3bn from Chinese automaker Dongfeng and the French state, as the carmaker reported a narrowing of its net loss in 2013.

The agreement involves Dongfeng and the French government each injecting €800m in return for 14 per cent stakes in the carmaker. There is also a €1.4bn rights issue in which shareholders and the market can take part.

Paris believes the deal will not require approval by Brussels as EU competition rules do not count public investment in a company on the same terms as a private investor as state aid.

The hope is that the deal will not only offer a welcome injection of capital to the French group, which for years has been burning through cash, but also a springboard for improving its sales outside Europe, particularly in Asia.

“The strengthening and deepening of the existing industrial and commercial partnership with Dongfeng” would “capitalise on the group’s current success in the world’s largest automobile market,” said Peugeot.

Peugeot also announced an auto-loan joint venture with Santander, a €2.7bn credit line, and a deeper partnership with Dongfeng – all in an attempt to leave Carlos Tavares, incoming chief executive, a clean slate when he takes over in March.

Confirmation of the tie-up came as Peugeot on Wednesday reported a narrowing of its full-year net loss €2.3bn for 2013, which was less than half the €5bn loss reported in 2012 when the carmaker was hit by asset writedowns.

Peugeot’s sales for 2013 contracted 2.4 per cent year on year to €54.1bn. The group also said cash consumption last year fell 86 per cent, beating a target of reducing the figure by half.

The deal will see the Peugeot family’s 25 per cent stake and 38 per cent of voting rights diluted, leaving it with the same stake as Dongfeng and the government. No one party will have a big enough stake to veto decisions.

This marked the end of an era for a family which has controlled the 118-year old French carmaker since the early days of steam-powered cars in 1889, through a bumpy merger with Citroën in 1975, to today’s fully electric iOn model.

The family will see its number of board seats reduced from four to two and Thierry Peugeot lose his post as chairman. The French government and Dongfeng will each receive two board seats and there will be six independent directors.

The deal negotiations prompted divisions within the family, with chairman Thierry Peugeot arguing that the company could raise money without the help of Dongfeng, but Robert Peugeot, head of the family holding company, supporting the deal.

Some analysts have cast doubts over the logic behind the Dongfeng capital deal, saying that cash was not the immediate problem and that Peugeot could instead sell other parts of its business like the Faurecia if it wanted money.

Others have said the involvement of the French state will make restructuring more difficult, although most applaud the idea of strengthening industrial ties with Dongfeng to produce more cars in southeast Asia.

The lending ventures with Santander is designed so Banque PSA Finance can stand on its own two feet when the €7bn worth of government guarantees secured in 2012 expire in 2016.

The ventures could carry “potential cash upstream” of as much as €1.5bn by 2018, Peugeot said.

Existing Peugeot shareholders will get warrants entitling them to more stock at the same €7.50 as the reserved issue, a 40 per cent discount to their market value, raising up to a further billion euros on top of the €3bn.

The company already has a successful joint venture with Dongfeng building cars in China, but trails rivals such as Fiat and Volkswagen in markets such as South America, and Renault-Nissan in tapping growth in southeast Asia.

Europe’s second-largest carmaker by sales, the group has been undertaking tough restructuring measures to address its heavy operating losses and rapid cash burn, and has been reaching out for help from Dongfeng and General Motors.
 
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