PSA's chairman seeks to protect family role in carmaker

Thierry Peugeot wants his family to remain PSA's biggest shareholder.

Photo credit: Reuters
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PARIS (Reuters) -- PSA/Peugeot-Citroen Chairman Thierry Peugeot has written to his cousin Robert Peugeot, head of the Peugeot's FFP family holding, to criticize a planned tie-up with China's Dongfeng Motor that would dilute the family's influence, a French newspaper reported.

PSA's board earlier this month approved a 3 billion euro ($4.1 billion) capital increase that would result in Dongfeng, the French government and the Peugeot family each with a 14 percent stake in the automaker.

The Peugeot clan currently controls PSA through a 25 percent stake commanding 38 percent of voting rights.

Robert Peugeot favors pulling back from the family's reliance on the automaker, while Thierry wants to maintain as much control as possible of the company the family founded, according to sources.

"I am worried about the strategy of withdrawal from Peugeot that you seem to want to carry out," Thierry Peugeot said in the letter dated Jan. 27, business daily Les Echos reported on Wednesday, publishing a copy of the letter.

The plan will create a three-headed governance structure that will make running PSA difficult, Thierry said in his letter.

Market option

Thierry is pushing an option in which PSA would raise the entire 3 billion euros by selling shares on the market without investments from Dongfeng or France, the report said. JPMorgan Chase & Co. has offered to fully underwrite a capital increase of that size.

While the difference between the two cousins over strategy has been widely known, the letter makes explicit Thierry Peugeot's objections to the plan.

The boards of the Peugeot family's two holding companies -- EPF and FFP -- signed off this week on a two-step capital increase, said sources, who asked not to be identified because the meetings were private. Seven of 10 board members present at an EPF meeting on Jan. 27 voted in favor of the plan. The FFP board met the following day, with no one voting against the proposal.

Shareholder approval

"Now the main question is whether this whole deal will pass the vote of the shareholders," said Philippe Houchois, a London-based automotive analyst at UBS. "Will the family be able to force the approval of the deal on the others?"

PSA needs the support of 66 percent of those attending the annual meeting to move forward with the capital increase, said company spokesman Jean-Baptiste Thomas.

The automaker is currently moving forward with the first option and is making progress in the talks with Dongfeng, the people said. PSA still aims to announce a definitive deal when it reports 2013 earnings on Feb. 19, sources said.

As part of the plan, the family will invest about 100 million euros to maintain a 14 percent stake, one person said. Dongfeng and the French government would each contribute at least 750 million euros to have holdings of about 14 percent apiece. The automaker would then hold a rights issue of about 1.4 billion euros for the rest of the funding, a source said.

"I still think they should have a long hard think about whether the family should be this involved in the business," said Erich Hauser, a London-based automotive analyst at International Strategy & Investment Group. "Only at Peugeot do you seem to have this multitude of family members trying to protect their own interests."

PSA is seeking a cash injection after burning through more than 4 billion euros in the last two years as auto demand in its European home region sank. The new funding is equal to 75 percent of the automaker's market value and follows a 2012 share sale to raise 1 billion euros in which General Motors Co. bought a 7 percent stake that it later sold.

Bloomberg contributed to this report

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