PARIS (Reuters) -- PSA/Peugeot-Citroen is preparing a 3 billion euro ($4.1 billion) capital increase in which the company's Chinese partner Dongfeng Motor and the French government would take matching stakes in the automaker, people with knowledge of the matter said.
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, sources said. They asked not to be identified because the negotiations are confidential.
PSA's board will discuss the possible stake sale at a board meeting scheduled for Oct. 22, the day before the automaker reports third-quarter revenue figures, sources said.
"The situation is dire," David Arnold, an industry specialist at Barclays Capital, said in an e-mail to clients. "It's clear that cash is now much more of a drag and the company realizes that it cannot starve the business of investment or it will lose out long term."
Dongfeng Motor and the French government would each contribute 1.5 billion euros and acquire 20 to 30 percent of PSA, the sources said. The capital increase would be accompanied by an expansion of DPCA, the PSA-Dongfeng joint venture in China, adding more PSA vehicles and technology to target other markets in the region, the sources said.
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 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 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.