Peugeot looking to raise capital, unions agree on overtime pay cuts

PSA Peugeot Citroen has turned its focus on a plan for a capital increase of at least 3 billion euros ($4.1 billion), in which Dongfeng and France may take equal stakes of about 20%. Talks are making slow progress, said the people, who asked not to be identified. The goal is for a deal by year’s end, they said.

Four of the six main unions, the CFE-CGC, SIA, CFTC and FO, have told Bloomberg yesterday they’ll support a proposal to reduce overtime pay and freeze salaries in exchange for investment guarantees and new models to boost capacity utilization. Peugeot, which reported a first-half operating loss in its automotive unit of 510 million euros, is looking to raise money for development spending and an expansion outside Europe, where demand is at a 20 years low.

Under such a plan, the Peugeot family would lose control of the company because the capital increase would reduce its 25.4% stake and 38.1% in voting rights.

“PSA will remain a French company,” French industry minister Montebourg told Le Parisien daily in an interview.

Asked if that meant there would be no Chinese investment in Peugeots capital, Montebourg said: “I didnt say that. What Im saying is that the company will stay in France and will remain French.”

General Motors Co., which holds 7% stake in Peugeot, may decide to withdraw from alliance with the French carmaker if Dongfeng purchases a holding because GM works with rival SAIC Motor Corp. The Detroit-based carmaker has the legal option to terminate the partnership if there’s a change in control of the French manufacturer.

Peugeot dropped 2.5% to close at 10.54 euros trading yesterday. The stock has gained 93% year-to-date.

“The shares have been pretty volatile in recent weeks due to ongoing rumors regarding government participation,” said Sascha Gommel, a Frankfurt-based analyst at Commerzbank AG who recommends selling the stock. “It would be clearly negative if the French government is getting involved because it would dilute the restructuring measures as the government wants to protect jobs in France.”