Peugeot and GM finalize agreement

General Motors and PSA Peugeot Citroën have agreed to an alliance in which GM will purchase a 7% stake in Peugeot. The companies said they expect partnership will produce annual savings of about $2 billion, though for the first two years savings will be limited as both companies restructure their unprofitable European operations,

the

New York Times

reported.

GM will acquire the Peugeot shares as part of a 1 billion euro rights offering that will be underwritten by a syndicate of banks and will “include an investment by the Peugeot family aimed at instilling confidence in the alliance’s success, the

Times

article said.

GM will become Peugeot’s second-largest shareholder after the Peugeot family, which owns about 30%.

A

Wall Street Journal

article

said the alliance “represents the first significant move in decades by the French auto makers founding Peugeot family to reduce its controlling interest.” Credit Suisse analyst Erich Hauser told the

Journal

he estimates that the family’s voting shares will decrease from about 46% to 40%. The

Journal

article said:

Their decision to lessen the size of the family stake is partly a function of the tough conditions in Europe’s car market.

The

Journal

report noted that the family’s stake in Peugeot Citroën is valued at 1.09 billion euros and “is held through a holding company controlled by three family-owned concerns that has refusal rights on any shares offered by family members.” The Journal article noted:

Family members have stepped in when they felt the company’s interests weren’t being served by its executives.

The family fired a CEO in 2009 and vetoed a plan to deepen Peugeot’s partnership with Mitsubishi in 2010, the

Journal

pointed out.

Analyst Peter Nesvold told the

New York Times

that Peugeot stood to benefit more than GM from the alliance.

The

Financial Times

reported

that after news of the alliance, Moody’s Investors Service downgraded Peugeot Citroën’s debt rating to junk status. Moody’s said Peugeot faced “tremendous operational stress” and cited upfront expenses due to the alliance. (Sources:

New York Times,

Feb. 29, 2012;

Wall Street Journal,

March 1, 2012;

Financial Times,

March 2, 2012.)