Peugeot mulls Faurecia sale with Dongfeng tie-up -sources

Reuters

By Sophie Sassard and Norihiko Shirouzu

LONDON/SHANGHAI, Nov 15 (Reuters) - French carmaker PSAPeugeot Citroen is preparing for a possible sale ofits Faurecia components division to accompany a tie-upwith China's Dongfeng Motor Group, several sources withknowledge of the situation said.

The separately listed parts maker has hired an adviser toexplore the sale of Peugeot's 57 percent stake either in themarket, or to a private equity fund or industry peer, said thesources, who asked not to be named because the talks areprivate.

Discussions are at a very preliminary stage, they said, andremain conditional upon the success of complex negotiations onPeugeot's deeper tie-up with its existing Chinese partner.

Talks on a 3 billion euro ($4 billion) capital increase, inwhich the French government and Dongfeng would eachacquire 20-30 percent of Peugeot, are progressing more slowlythan the troubled carmaker initially hoped, people withknowledge of the situation said last month.

Little progress has been made since then, they added thisweek.

"The talks look pretty much stuck in the mud," one of thepeople said.

Peugeot and Faurecia both declined to comment on Friday.

The French carmaker is "very eager" to sell a significantstake to its Chinese partner, but Chairman Xu Ping is not yetconvinced, a source close to Dongfeng said.

Dongfeng would want a stake purchase to yield deeperstrategic benefits than Chinese rival SAIC gainedfrom a minority holding in General Motors' South Koreandivision, formerly Daewoo, the source said.

"Dongfeng doesn't want to be a passive investor," the sourcesaid.

Peugeot is reluctant to sell Faurecia because the profitablecompany, based in the western Paris suburb of Nanterre, helps tosupport the carmaker's credit rating.

PRIVATE EQUITY INTEREST

But the disposal might be necessary to win European Unionapproval and French political acceptance for another governmentbailout. France granted 7 billion euros ($9.4 billion) in loanguarantees to prop up Peugeot's financing arm last year.

Private equity funds including Carlyle, KKR,CVC and Bain are looking at Faurecia, two sources said,emboldened by a buoyant debt market and the scarcity of dealopportunities in Europe.

KKR declined to comment. Carlyle, CVC and Bain did notreturn calls and messages seeking comment.

Peugeot is also still in talks to merge its Banque PSAfinancial arm with Banco Santander's car loans businessin a deal it hopes to sign in the first quarter of 2014, said asource with direct knowledge of the matter.

The transaction is taking time because of legal complexitiesand Santander's reluctance to take on Banque PSA's existing loanbook, according to people familiar with the situation.

The Spanish bank would prefer to limit the combinedoperations to new lending, one said.

"Santander knows they are the only contender for a deal ofthat scale, so they have no incentive to compromise," the personsaid.

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