Report: Dongfeng to Cut Stake in PSA

Dongfeng Motor Group will reduce its stake in PSA Group to help the French carmaker clear U.S. regulatory hurdles ahead of its planned merger with Fiat Chrysler Automobiles NV, Reuters reports.

The Chinese carmaker’s stake in the combined PSA-FCA venture would be about half of its current 12.2% stake in PSA. But the reduced holding still might raise U.S. national security concerns amid the ongoing trade tensions between China and the U.S.

Reuters suggests that lowering ownership to less than 5% would make the deal more palatable. A larger stake would likely give Dongfeng a seat on the board of the new company.

Dongfeng solicited divestiture proposals from banks several weeks ago, sources tell the news agency. Such a plan could be presented to the Chinese carmaker’s board of directors within a few days.

PSA and FCA announced the 50:50 merger plan in late October and hope to sign a binding agreement this month. The $50 billion deal would create the world’s fourth-largest carmaker with annual sales of 8.7 million vehicles.

In addition to its equity stake in PSA, which Dongfeng acquired in 2014, the two companies operate a joint venture in Wuhan, China. The partners announced plans in September to restructure the company, called Dongfeng Peugeot Citroen Automobiles.