(Corrects to say in para 5 PSA burnt 3 bln euros in 2012, not
* MOU to be signed later on Tuesday - source
* Dongfeng, French govt to each inject 800 mln euros -
* PSA fundraising to total 3 bln euros - sources
By Samuel Shen and Kazunori Takada
SHANGHAI, Feb 18 China's Dongfeng Motor Group Co
Ltd and PSA Peugeot Citroen will agree on Tuesday to a capital
tie-up as part of a broader 3 billion euro fundraising that will
end the Peugeot family's control of the 200-year-old French
carmaker, a source said.
A non-binding memorandum of understanding will be signed
whereby China's second-biggest carmaker and the French
government each will inject 800 million euros ($1.10 billion)
for 14 percent stakes in PSA Peugeot, a Dongfeng
executive with direct knowledge of the talks told
Peugeot will also sell new shares to existing shareholders,
bringing the total fundraising effort to 3 billion euros ($4.1
billion), the source said, confirming earlier Reuters' reports.
The source declined to be identified because the information was
not yet public.
The rescue deal will help Peugeot - founded in 1810 as a
maker of tools and coffee grinders - survive the withdrawal next
year of 7 billion euros in state guarantees to its sales
financing arm, which are keeping the French firm afloat.
The company that beat Ford by 22 years to make the first
series-manufactured car back in 1891, survived two world wars
and become a champion of French industry is struggling to
contain losses that burnt 3 billion euros of cash in 2012.
For Dongfeng, the tie-up represents the expansion of another
Chinese giant through an investment in a struggling Western
brand. Just last month Lenovo Group Ltd said it would
buy Motorola Mobility from Google Inc for $2.91 billion
in the fourth-largest U.S. acquisition by a Chinese company.
Dongfeng is the latest Chinese carmaker to either fully or
partially acquire foreign rivals after Zhejiang Geely Holding
bought Sweden's Volvo Car in 2010 and SAIC Group's
purchase of South Korea's SSangyong.
Under the deal between Dongfeng and PSA, the Peugeot
family's 25 percent stake and 38 percent of voting rights would
be diluted to parity with the government and Dongfeng, short of
the one-third required to veto decisions.
Sources have said Peugeot plans to sell new stock to
Dongfeng and the French state priced at 7.50 euros, a 41 percent
discount on Monday's 12.79 euro closing price, followed by a
rights issue to existing shareholders.
Dongfeng spokesman Zhou Mi said an announcement related to
the PSA deal would be made on Wednesday. A Peugeot spokesman
declined to comment on the discussions.
Sources on Monday said the Peugeot family had given the
go-ahead and Peugeot's board would approve the tie-up on
Tuesday, with an announcement the following day.
Peugeot is among the worst casualties of Europe's six-year
market slump and is being kept alive by state guarantees that
expire next year.
The company has been slow to adapt to competition and
critics argue it has missed opportunities for strategic
partnerships in the past, such as with German group BMW
or Japan's Mitsubishi Motors.
Even so, the tie-up with Dongfeng has divided the Peugeot
family and some analysts have cast doubts over the logic behind
the deal, saying Peugeot could instead sell its lending arm or
Faurecia parts division.
Questions also have been raised over what Dongfeng would
gain through the tie-up beyond putting some of its excess cash
to work. As of the end of June, Dongfeng had 24 billion yuan
($3.96 billion) worth of cash or cash equivalents, according to
its mid-year report.
The Dongfeng source said the MOU would include cooperation
on technology but industry experts doubt Peugeot will be willing
to share engineering know-how that would upgrade the Chinese
firm's Fengshen line of vehicles.
It took lengthy negotiations for Geely to convince Volvo to
make technology available, and in the end the European carmaker
only parted with platform technology that it had decided to
retire. The two companies recently agreed however to jointly
develop small-car technology.
"That was tough even though Geely owns 100 percent of Volvo.
Try convincing Peugeot to cough up technology when you own only
a small stake. Good luck," said Yale Zhang, head of
Shanghai-based consulting firm Automotive Foresight.
Sources have said Peugeot and Dongfeng will cooperate to
expand into Southeast Asia, although Peugeot has limited market
penetration in the region.
PSA sold around 6,500 cars in Malaysia, its biggest market
in Southeast Asia, in 2013, accounting for just one percent of
the overall market, according to research firm LMC Automotive.
Shares of Dongfeng were suspended on Tuesday pending an
announcement, it said in a filing to the Hong Kong stock
exchange. The shares closed down 1.6 percent at HK$10.96 on
($1 = 0.7298 euros)
($1 = 6.0641 Chinese yuan)
(Additional reporting by Norihiko Shirouzu; Editing by Stephen