PARIS (Bloomberg) -- PSA/Peugeot-Citroen's plan to raise funds through a share sale have hit a snag as China's Dongfeng Motor seeks a smaller stake than first discussed, people familiar with the matter said.
Dongfeng is weighing buying around 10 percent, half the size of the original proposal, said the people, who asked not to be identified discussing private talks. The Chinese company is more interested in expanding an existing industrial venture than buying a stake, they said.
PSA originally proposed a capital increase of at least 3 billion euros ($4.1 billion), in which Dongfeng and the French state would take equal stakes of about 20 percent, people familiar said last month
A smaller Dongfeng stake would potentially give the state, interested in protecting jobs and retaining the automaker's base in France, greater say.
Some in the Peugeot family, which owns 25.5 percent, are concerned about the French government's increased influence and want guaranteed board seats or other protections as a counterweight after a capital increase likely dilutes their holding, the people said.
Another option would be for PSA to sell its 57 percent Faurecia stake, with Canadian parts-maker Magna International and other industrial competitors showing interest in the French supplier, people said. PSA thus far has said that it intends to keep the holding.
A 10 percent stake by Dongfeng and focus on expanding the existing joint venture would more closely mirror the PSA's current partnership with General Motors Co., which owns 7 percent of PSA.
Dongfeng and PSA already operate three factories together in China, with annual production capacity set to rise by two-thirds to 750,000 vehicles by the end of 2015.
The share sale is progressing slower than planned as Dongfeng, the French government and PSA's controlling family bargain over influence and the size of their eventual holdings, with a final agreement not expected until the end of the year at the earliest, the people said.
PSA, which is also talking to other potential industrial partners, is not likely to look more closely at Faurecia until completing the Dongfeng deal, the people said.
PSA is also considering the sale of a stake in its banking unit and continues to hold talks with Banco Santander in Spain regarding a holding in Banque PSA Finance, people familiar said. A Santander representative couldn't immediately be reached for comment.
Family at odds
Peugeot family members met at the weekend and gave their formal agreement for PSA to negotiate an alliance agreement with Dongfeng, according to Les Echos. The family is now waiting to see what investment stake Dongfeng proposes, while talks about a production alliance have advanced further than investment talks have, Les Echos reported.
A PSA spokeswoman would not comment on the Les Echos report.
Peugeot family members are at odds with one another over how best to secure the automaker's future, with Thierry Peugeot, who heads the automaker's supervisory board, wanting to retain greater control and Robert Peugeot, who heads the publicly traded investment vehicle FFP, opposed to sticking additional funds into the carmaker, two people familiar with the matter said.
Their cousin, Jean-Philippe Peugeot, has been trying to negotiate between the opposing camps to reach an agreement, they said.
Jean-Philippe's support is critical to any final decision because he heads EPF, the family's unlisted holding company. EPF controls the listed FFP, which in turn owns the family's main Peugeot stake.
The family clashed with the French government last month after a state official went to China to discuss PSA without the knowledge of the family or carmaker's executives, a person said.
Louis Gallois, the government's PSA board representative, is now acting as the main conduit for negotiations between the family and government, the person said.
PSA reported a first-half operating loss in its automotive unit of 510 million euros and is looking to raise money for development spending and to expand outside Europe, where demand is at a two-decade low.
Pierre-Olivier Salmon, a PSA spokesman, declined to comment. Marianne Zalc-Muller, Industry Minister Arnaud Montebourg's spokeswoman and Tracy Fuerst, a Magna spokeswoman, didn't immediately respond to requests for comment. Zhou Mi, Dongfeng's spokesman, said he's unaware of information that the talks with PSA have hit a snag and that the automaker is seeking a smaller stake.
Bruce Gain contributed to this report