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Dongfeng Motor Group deepens partnership with Peugeot with $1.1B stake, new industrial plan

China’s Dongfeng Motor Group (DFG) will invest at least €800 (US$1.1 billion) in France-based PSA Peugeot Citroën as part of a €3-billion (US$4.13-billion) capital increase newly approved by PSA’s board. The French government is making an equal investment at the same time.

The investment also marks a strengthening and deepening of the existing industrial and commercial partnership between PSA and DFG, China’s second largest carmaker. Since 2013, China has been PSA Peugeot Citroën’s second largest market, with around 550,000 vehicles sold in 2013 via DPCA, its 50/50 joint-venture with DFG. The capital increase and the closer ties to DFG are aimed at:

  • Strengthening PSA Peugeot Citroën’s footprint in China and in ASEAN and the realisation of industrial synergies with DFG, of around €400 million per annum for PSA Peugeot Citroën by early 2020s; and

  • Reinforcing PSA Peugeot Citroën’s competitive positioning in Europe, in particular through accelerating PSA Peugeot Citroën’s development via the financing of a program of strategic investments and strengthening its balance sheet and liquidity.

Capital increase. The €3.0-billion capital increase consists of several elements, including:

  • A reserved €1.048 billion (US$1.443 billion) capital increase to be subscribed by DFG and the French State on an equal basis (€524 million each), at a subscription price of €7.5 per share. DFG and the French State would each own c. 14% of Peugeot SA’s share capital following the reserved capital increase.

  • An approximately €1.950 billion (US$2.68 billion) rights issue open to all Peugeot SA shareholders (including DFG and the French State), and underwritten by a syndicate of banks for the shares not subscribed by DFG, the French State and Peugeot family holdings FFP and EPF. DFG and the French State would undertake to take up their share of the rights issue, in an amount of €276 million (US$380 million) each. The portion of the rights issue not subscribed by DFG, the French State and FFP/EPF, i.e. a maximum amount of c. €1,400 million, would be underwritten by a syndicate of banks.

  • DFG’s investment through the two successive capital increases, for a total amount of €800 million, would accompany the deepening of this historic industrial partnership. The French State would invest the same amount as DFG. FFP/EPF’s investment should amount to c. €150 million to €250 million, depending on definitive conditions and terms set in the context of the rights issue.

  • Prior to the capital increases, an attribution of free equity warrants to existing Peugeot SA shareholders, with one warrant granted per existing share, based on a subscription ratio of 10 warrants for 3 new PSA Peugeot Citroën shares. The warrants could be exercised over three years and would be exercisable from the 2nd year, with a strike price equal to the subscription price of the reserved capital increase in favor of DFG and the French State i.e. €7.5 per share.

  • A capital increase reserved for employees will be offered in the course of 2014, in order to give them the opportunity to participate in the value creation potential of the Group.

Industrial partnership. The new industrial plan is structured around three main axes:

  1. A joint commitment to propel DPCA into a new phase of growth, with the objective of tripling its volumes to 1.5 million vehicles per year by early 2020s. This will be based on a reinforced product plan underpinned by the licensing of technologies developed by PSA Peugeot Citroën and the launch of two to three new models a year globally for the three brands (Peugeot, Citroën and DPCA’s own brand).

  2. The creation of a joint R&D center, dedicated to the development of products and technologies for fast growing countries, including China. This R&D center will complete PSA Peugeot Citroën’s R&D footprint in Europe and Latin America. The agreement will include measures relating to the management of intellectual property, allowing PSA Peugeot Citroën to freely pursue the development of cooperation ventures with other carmakers.

  3. The creation of a new joint venture to drive the sales of PSA Peugeot Citroën and DFG vehicles in the rest of Asia and possibly in other emerging markets. This is aimed at capturing the strong growth opportunities in the ASEAN economies and leveraging the similarities between the model line-ups marketed there and in China.

PSA launched its DS line in China in 2013 through with its partner Chang’an Automobile Group through its JV CAPSA, co-owned 50/50. The agreements with DFG have no impact on the DS line development plan in China, which is designed to maximize capacity utilization at the Shenzhen plant in 2018.

Moreover, the alliance with General Motors continues in Europe and is delivering additional growth and synergies estimated at $1.2 billion by 2018, shared equally by the two partners.

Upon completion of the contemplated operations, the governance of the PSA Group would be modified to take into account DFG and the French State as new shareholders.


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