(Updates with Dongfeng shares in fifth paragraph.)
Feb. 19 (Bloomberg) -- Dongfeng Motor Group Co. agreed to pay 800 million euros ($1.1 billion) for a stake in PSA Peugeot Citroen in the biggest overseas acquisition by a Chinese automaker since Zhejiang Geely Holding Group Co. bought Volvo Cars in 2010.
Dongfeng will buy 524 million euros of Peugeot shares at 7.50 euros apiece and the rest through a rights issue, with the French government expected to do the same, the Wuhan, China- based company said in an exchange filing today. The deal will give Dongfeng and the French government holdings of 14 percent apiece, while the Peugeot family’s stake will be diluted to 14 percent from the current 25.5 percent, a person familiar with the matter said before the announcement.
The purchase paves the way for the Chinese automaker to access technology and overseas markets through its tie-up with the 118-year-old manufacturer. For Peugeot, the deal marks a turning point as the family is set to lose full control for the first time since being founded by Armand Peugeot.
“It’s a good deal for both Dongfeng and PSA,” said Han Weiqi, a Shanghai-based analyst at CSC International Holdings Ltd. “Dongfeng can tap PSA’s core technologies and overseas network for expansion. For PSA, the investment helps them coming out of an imminent crisis.”
Dongfeng fell 0.7 percent to HK$10.88 at 9:39 a.m. in Hong Kong. The stock was halted from trading yesterday.
Peugeot also plans to distribute warrants to existing shareholders, with every 10 warrants entitled to three shares at 7.50 euros each, according to the filing. The memorandum of understanding’s long stop date is July 31.
The deal is the largest overseas investment by a Chinese automaker since Geely agreed to pay $1.8 billion for Volvo Cars in 2010. Dongfeng’s parent, Dongfeng Motor Corp., is one of China’s key state-owned companies administered by the central government.
Dongfeng said that it intends to expand and deepen its current cooperation with Peugeot in their China joint venture, enhance research and development and strengthen overseas cooperation, according to its filing. The partnership will target to sell 1.5 million vehicles under the Dongfeng, Peugeot and Citroen brands a year starting from 2020, it said.
Dongfeng and Peugeot will also consider setting up an export company to sell vehicles manufactured by their China joint venture to the Asia Pacific region, according to the statement.
“Dongfeng can’t expect all of PSA’s technology to be transferred over, but as a shareholder now, it could put in requests and this could help it,” said Harry Chen, a Shenzhen- based analyst at Guotai Junan Securities Co. “Exports might take a while to happen, but it’s a move in the right direction. China can’t just rely on the domestic market for continued growth.”
Peugeot, Europe’s second-biggest carmaker, said in January it’s in talks to sell stakes to Dongfeng and France’s government in an initial step of a 3 billion-euro capital increase to fund a reorganization. Board Chairman Thierry Peugeot and his cousin, Robert Peugeot, have clashed over the strategy, with Thierry favoring selling all the new stock on the market without investments by Dongfeng or France, according to people familiar with the situation.
A French minority shareholders’ association, ADAM, said separately in a letter to Thierry Peugeot in February that Dongfeng, the French state and the Paris-based carmaker’s founding family may be considered as acting together in their proposal, potentially triggering a mandatory offer to buy out the other stockholders.
The French state has said it will participate in the deal to “secure balanced ownership of the company, as Dongfeng is a Chinese company controlled by the government,” French Industry Minister Arnaud Montebourg told reporters in Warsaw on Feb. 7. “We want to create a giant with global reach,” and “an alliance with Dongfeng will create a relationship of equals while at the same time preserving decision center and R&D outlets in Europe.”
Dongfeng and Peugeot build cars together at three plants in China. The French manufacturer opened a fourth Chinese factory in late 2013 with a separate local partner, Chang’An Automobile Group, for the Citroen brand’s up-scale DS model line.
PSA Peugeot Citroen’s sales in China rose 26 percent last year, outpacing the country’s passenger-vehicle market, helping to limit the decline in worldwide deliveries to 4.9 percent, according to company figures.
--Alexandra Ho, Mathieu Rosemain and Tian Ying, with assistance from Lulu Yilun Chen in Hong Kong. Editors: Chua Kong Ho, Young-Sam Cho