Peugeot offers big discount on $1.3 billion share sale
PARIS/GENEVA (Reuters) - French carmaker PSA Peugeot Citroen offered its shares at a deep discount on Tuesday in a 1 billion euro ($1.3 billion) rights issue to fund an alliance with General Motors aimed at boosting overseas growth and new model development.
U.S. automaker GM and Peugeot announced an alliance last week to co-operate on developing new cars with the aim of saving $2 billion annually via pooling purchasing and research and development.
The French carmaker hopes the deal will help it step up expansion in lucrative new markets as Europe's car market struggles.
Peugeot said on Tuesday it would offer 16 new shares for every 31 currently held by investors at 8.27 euros apiece, a 42 percent discount to its closing stock price on Monday.
The deal will see GM take a 7 percent stake in Peugeot for 304 million euros, Peugeot said.
GM had previously valued the purchase at approximately 320 million euros, based on earlier market prices.
For the founding Peugeot family, the capital increase will dilute its stake but is seen as the best way to replenish the company's coffers after a tough year that saw it burn through 1.6 billion euros in cash.
The family will contribute 140 million euros to exercise 45 percent of its subscription rights in the issue - less than the 150 million euros and 50 percent uptake announced last week.
"We always said it would be around 50 percent, and it is," Peugeot CEO Philippe Varin said on Tuesday. "That hasn't changed."
The operation will dilute the Peugeot clan's stake to 25.2 percent from just over 30 percent, with 37.9 percent of voting rights.
The capital increase, underwritten by a syndicate of banks led by BNP Paribas, Morgan Stanley, Societe Generale and HSBC, will take place from March 8-21.
The Peugeot family and General Motors have committed to take 31 percent of the shares issued, the company said.
"This will allow us to accelerate our international expansion and our move into higher-end models faster than we would have been able to do on our own," chief financial officer Jean-Baptiste de Chatillon said on a conference call.
Peugeot also said it would not pay a dividend for 2011 because it wanted to "give priority to allocating financial resources to the group's development.
Asked about the discount, de Chatillon said it was within normal ranges for a rights issue that would last roughly two weeks.
"General Motors is entering like any other shareholder, at the launch price," he later told reporters at the Geneva Auto Show.
Analyst opinion was divided on the discount, with one London-based analyst calling it "very steep" and adding: "I suppose that's the price to get it underwritten."
The 42 percent discount was "already on reduced share price levels," Macquarie analyst Jens Schattner said. "If you compare with two weeks ago, when we were still at around 16 euros, this is a 50 percent discount."
But Deutsche Bank analyst Gaetan Toulemonde argued that many rights issues in the past two years had been done at similar discounts, pointing to the 25-30 percent markdown on Michelin's cash call in late 2010.
"The environment for the auto space is probably a little worse in terms of outlook, overcapacity and so on," he said.
At 1626 GMT, Peugeot shares were down 2.9 percent at 13.81 euros.
Slideshow from Geneva: here
Graphic on Europe registrations: r.reuters.com/cyz86s
Both carmakers are betting that the alliance will help them overcome thorny issues of overcapacity and enable them to cut costs in a European market where competition is cut-throat.
GM hopes the deal to help it reverse 12 years of losses in Europe, mainly on its Opel brand, totaling more than $12 billion.
Speaking at the auto show on Tuesday, GM Vice Chairman Steve Girsky said the Peugeot alliance was only one element of its plan to fix Opel, although he declined to provide specifics.
Speculation has swirled around which Opel factories GM might target for closure in Europe, while Peugeot's moves to close plants are likely to run into stiff opposition from unions and politicians in France.
Analysts and auto executives say production capacity is at least 20 percent higher than needed in Europe to keep companies profitable in a tight and weakening market.
PSA's manufacturing head Denis Martin told Reuters that the French group was giving itself two years to deal with its overcapacity issues, and hoped to take inspiration from its new American partner GM.
"I think the Americans have an ability, faced with a difficult situation, to take quick steps to clean up things," he said in Geneva.
"I think this needs to be a lesson for Europeans... a sign that we also need to work hard on our restructuring."
Martin declined to comment on whether such moves would imply factory closures, nor where they may take place.