PSA, Dongfeng Agree on Outline for Equity Deal

PSA Peugeot Citroen, China's Dongfeng Motor Group and the French government have agreed on the general elements of a deal to raise as much as €4 billion in fresh capital for the French carmaker, according to unnamed sources quoted by Reuters.

They says the plan will be presented to PSA's board on Feb. 18 and is likely to be signed that day as a non-binding memorandum of understanding.

Under the plan, PSA and Dongfeng would expand their existing joint venture in China by intensifying shared research and development. Their aim would be to expand into markets in southeast Asia, according to Reuter's sources.

The news service says the deal would raise about €3 billion in the form of equal equity stakes to Dongfeng and the French government at a discounted price of €7.50 per share, plus a later stock issue to existing shareholders. One of the news service's source says PSA could raise as much as €1 billion more in the form of warrants to current shareholders that would enable them to buy more stock.

One unresolved issue is who will become PSA's new independent chair when the deal is completed. Reuters says the government favors Louis Gallois, and Dongfeng is championing Patricia Barbizet. Both candidates currently are independent members of the PSA board.