PARIS: PSA Peugeot Citroen is set to agree a capital tie-up with China’s Dongfeng on Tuesday, ending the reign of one of France’s oldest industrial dynasties.
In the latest buy-in of a Chinese giant to a struggling Western firm, a source said that Peugeot’s board is to approve an agreement for Dongfeng and the French government to each inject 800 million euros ($1.1 billion) for a 14-percent stake in the company.
The total fund-raising effort could bring in nearly 4 billion euros through the sale of additional shares.
The Peugeot family—which has controlled the firm since its founding in 1810 as a maker of coffee mills and bicycles—will see its 25-percent stake and 38-percent voting rights diluted to the same amount, as the stakes for the government and Chinese state-controlled Dongfeng.
The deal will come to Peugeot’s rescue after the group, Europe’s second-largest carmaker, suffered the indignity last year of needing 7 billion euros in state-guaranteed refinancing for its credit arm.
Peugeot has been among the hardest hit by a European slump in car sales, suffering a 5-billion euro loss in 2012 and cutting thousands of jobs.
For China, where Dongfeng is the second-biggest automaker, the agreement marks the latest high-profile Western acquisition by the economic powerhouse after last month’s $2.91-billion deal by Chinese technology giant Lenovo to buy Motorola from Google.
Under the Peugeot deal, the family will see its number of board seats reduced from four to two, and Thierry Peugeot will lose his post as chairman.
None of the three main shareholders would be allowed to increase its stakes for 10 years—seen as an effort to limit Dongfeng’s influence at Peugeot, which employs nearly 90,000 people in France.
The final deal is expected to be signed at the end of next month during a visit by Chinese President Xi Jinping to Paris.
‘It saves our bacon’
The Peugeot board is also set to agree to a deal for a tie-up between its financing arm and Spanish bank Santander for when the state-guaranteed funding expires at the end of 2016.
It is as well expected to approve the appointment of former Renault executive Carlos Tavares as the new chief executive officer to replace Philippe Varin, the man often blamed for guiding the company into its current turmoil.
Last year, a government-ordered enquiry found that Peugeot had made strategic mistakes for years by not seizing fully the opportunities of globalization.
Peugeot is set to release its results for 2013 early on Wednesday, after it took a series of cost-cutting measures aimed at saving 1.5 billion euros, including closing its iconic Aulnay-sous-Bois factory near Paris.
The company is hoping the tie-up with Dongfeng will give it a boost in China, which is now the group’s number two market behind France and where it operates three joint factories.
Dongfeng Motor Corp., founded in 1969 and whose name means “East Wind,” sold 3.53 million vehicles in China in 2013, giving it a 16-percent market share.
Industrial Renewal Minister Arnaud Montebourg said that the state’s decision to buy in to Peugeot was important to France’s economic future.