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 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 percent holdings, the source said on
Wednesday, speaking on condition of anonymity.
The capital increase would be priced at below 7 euros per share, and
perhaps as low as a 6.85 euro indicative offer from Dongfeng, the
source said. Peugeot's shares closed at 11.50 euros on Wednesday.
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.
Peugeot, one of the carmakers worst hit by the European market
slump, is cutting jobs and plant capacity to try to halt losses
within two years.
Philippe Varin, Peugeot's outgoing chief executive, has said the
French carmaker is exploring a deeper relationship with Dongfeng,
its existing partner in a Chinese joint venture.
The two companies have been in talks for months to extend
cooperation to other Asian countries after a multibillion-euro share
issue in which Dongfeng and the French government would acquire
significant stakes, sources have said.
The Financial Times reported they plan to transfer some Peugeot
technologies to Dongfeng while targeting new markets in southeast
Asia.
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 said.
Under its outline terms, Dongfeng and the French state would each
hold about 20 percent of Peugeot after a reserved share sale to the
French state and Dongfeng and accompanying rights issue for existing
shareholders.
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The founding Peugeot family would lose control as its stake was
diluted from 25 percent to 15 percent even after acquiring some new
stock in the rights issue, the source said.
The effect would be even more dilutive for 7 percent-shareholder
General Motors <GM.N> or any other existing investors that turn down
the chance to buy new shares. Peugeot hopes to conclude the deal in
January or February, according to the source.
In a move that may help secure the new funding from Dongfeng,
Peugeot last week named former Renault No.2 Carlos Tavares as its
next chief executive.
(Reporting by Sophie Sassard; Writing by
Laurence Frost; editing by Alexander Smith and Jane Merriman)
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