By Sophie Sassard
PARIS (Reuters) - PSA Peugeot Citroen (UG.PA) is preparing a 3 billion euro ($4.1 billion) capital increase in which Chinese partner Dongfeng and the French government would take matching stakes in the carmaker, people with knowledge of the matter said Friday.
A French delegation of executives, government officials and bankers is heading to China for talks to prepare an outline for a deal that could be signed within weeks, three sources said.
They asked not to be identified because the negotiations are confidential.
Under the draft agreement, which Peugeot hopes to conclude this year, state-owned Dongfeng Motor Co Ltd <0489.HK> and the French government would each contribute 1.5 billion euros and acquire 20 to 30 percent of the carmaker, the people said.
The Peugeot family would lose control of the company because the cash injection would dilute its 25.4 percent stake and 38.1 percent in voting rights.
The capital increase would be accompanied by an expansion of DPCA, the Peugeot-Dongfeng joint venture in China, adding more Peugeot vehicles and technology to target other markets in the region, the sources said.
Peugeot, among the worst casualties of a six-year European car sales slump, is seeking more cooperation with Dongfeng or another automaker as it struggles to cut costs and losses that have threatened its survival.
"Peugeot confirms it is studying new industrial and commercial projects with different partners, as well as the financing to accompany them," a company spokesman said, declining to elaborate. "None of these plans have yet reached an advanced stage."
The French finance ministry declined to comment. Dongfeng officials were not immediately available out of office hours.
Part of the new capital would be raised through a rights issue in which the Peugeot family would sell new stock to the French government, the sources said. The remainder would be raised in a reserved capital increase.
The 3 billion euro cash injection would amount to 68 percent of the French carmaker's 4.39 billion euro market value. It would be worth about 40 percent of the new share capital and also dilute the 7 percent stake held by General Motors Co (GM).
Paris-based Peugeot, which is slashing jobs and plant capacity, entered an alliance with GM last year and sold a stake to the U.S. carmaker in a 1 billion euro capital increase.
The Peugeot family indicated it was ready to give up control as the company carried out initial soundings on a Dongfeng tie-up, while attempting to revive talks on a deeper alliance with GM [ID:nL5N0F32U2].
The future of that pairing could be affected by Dongfeng's level of influence over Peugeot in any expanded partnership, GM Vice-Chairman Steve Girsky told Reuters last month.
Earlier this week, China Business News reported that Dongfeng might pay 1.2 billion euros for a 30 percent Peugeot stake.
Chief Executive Philippe Varin said in July that Peugeot was on track to beat its 2013 goal of halving its industrial cash burn to 1.5 billion.
(Writing by Laurence Frost.; Additional reporting by Gilles Guillaume, Jean-Baptiste Vey and Ingrid Melander. Editing by Andre Grenon)