February 27, 2012 / 7:22 PM / 7 years ago

GM in talks to buy small Peugeot stake: sources

PARIS/NEW YORK (Reuters) - General Motors Co (GM.N) is in advanced discussions to buy a small stake in French automaker PSA Peugeot Citroen (PEUP.PA) as part of their proposed strategic alliance in Europe, sources familiar with the situation said on Monday.

The Peugeot 3008 Hybrid4 is pictured during the International Motor Show (IAA) in Frankfurt, September 14, 2011. REUTERS/Ralph Orlowski

Under the terms being discussed, GM would likely buy a stake of less than 5 percent in Peugeot, the sources said.

Any purchase by GM would be “purely symbolic” to cement the commercial alliance, one of the sources said, adding that the size of the stake would be “in that region.”

At Peugeot’s current market value of $4.8 billion, a 5 percent stake would be worth $240 million.

A deal could be announced in the next few days, although sources warned that an agreement has not been reached and talks could still fall apart.

A GM spokesman declined to comment. A Peugeot spokesman did not immediately return calls and messages seeking comment.

GM and Peugeot are discussing a broad strategic alliance designed to stem losses in Europe and cut production costs elsewhere, people familiar with the matter said last week.

For GM, an alliance would provide a means to lower operating costs at its loss-making European unit, Opel, while Peugeot would gain much-needed access to international markets at a time when auto sales in Europe are sagging, sources said previously.

But the plan has met with some skepticism. Analysts said while an alliance with Peugeot would allow the companies to pool together resources to develop vehicles, it could take a decade to fully realize the benefits of the pact.

They said more steps would be needed to overcome the core problem for both automakers in Europe: overcapacity.

“Frankly we believe it will introduce complications at a very delicate time in its own restructuring,” Guggenheim analyst Matthew Stover said last week. “In the grand scheme of things, GM has much more to offer PSA than the other way around.”

Opel is one of the key concerns for GM investors. In 2009, the automaker’s then-CEO Ed Whitacre scotched a planned sale of the unit. Last year, GM lost $747 million in Europe and Morgan Stanley analysts value Opel at negative $8 billion.

GM Vice Chairman Steve Girsky has taken charge of the Opel restructuring, and GM said this month that it would detail further steps soon.

The European auto market has long been plagued by too much capacity, cutthroat price competition and paper-thin margins. Those structural issues have been compounded by the recent debt crisis, which has hurt consumer confidence and caused many would-be car buyers to pull back on their spending.

Any stake investment in Peugeot would have little impact on the balance sheet of GM, which ended 2011 with $37.5 billion in liquidity.

Reporting by Christian Plumb in Paris, Philipp Halstrick in Frankfurt and Soyoung Kim in New York; additional reporting by Deepa Seetharaman; Editing by Gary Hill

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