PSA Peugeot-Citroën is said to be considering its stake in component supplier Faurecia while continuing with its ambitions to sell a stake in its own business to China's Dongfeng Motors.
IHS Global Insight perspective | |
Significance | PSA Peugeot-Citroën is said to be considering its stake in component supplier Faurecia while continuing with its ambitions to sell a stake in its own business to China's Dongfeng Motors. |
Implications | However, discussions relating to the Chinese automaker taking a significant stake in PSA are said to be exceptionally slow |
Outlook | While PSA has previously said that it is not planning to sell its interest in Faurecia, it is likely to be exploring all available options relating to the future of its organisation. |
PSA Peugeot-Citroën is said to be considering selling its stake in French component supplier Faurecia, according to a report published by Reuters over the past weekend. The people said that the company has hired an advisor to explore the possibility of selling its outstanding 57% stake in the business to private equity, an industry peer or the stock market. Private equity groups that sources have said have expressed an interest include Carlyle Group, KKR, CVC Capital Partners and Bain Capital, apparently driven by a buoyant debt market and a scarcity of deal opportunities in Europe.
Sources have said discussions are still at a very preliminary stage and would remain conditional on the success of negotiations relating to Dongfeng Motors taking a stake in PSA. However, this deal is said to be progressing far slower than the French automaker had wanted, with little in the way of action since October. One source has said, "The talks look pretty much stuck in the mud". Although PSA remains "very eager" to sell a significant stake to Dongfeng, according to sources, the Chinese automaker's chairman, Xu Ping, is not yet convinced. He is said to want a stake sale to be accompanied by deeper strategic benefits than SAIC Motor has gained from its minority stake in General Motors' (GM) South Korean division. A person related to Dongfeng said, "Dongfeng doesn't want to be a passive investor".
Reuters has also reported that PSA is also still in talks to merge its Banque PSA Finance (BPF) arm with Spanish bank Banco Santander's vehicle loans business. Sources have said that it is hoping to complete a deal within the first quarter of 2014. However, negotiations are sluggish due to legal complexities, as well as Santander's reluctance to take on BPF's existing loan book, preferring to limit combined operations to new lending. One person added, "Santander knows they are the only contender for a deal of that scale, so they have no incentive to compromise."
Outlook and implications
While PSA's key light vehicle development and manufacturing unit has struggled with losses over the past couple of years, Faurecia has remained in profit. One thing that has helped it remain on a positive footing has been a diverse customer base including the Volkswagen (VW) Group and Ford, which has helped it to avoid some of PSA's broader troubles. Although the automaker has said previously that it was not planning to sell its stake in this business, after selling stakes or complete units as part of an asset divestment programme to raise liquidity during 2012, it looks as if it could be exploring this option before it is forced to. Indeed, the report suggests that it may need to do this to win European Commission approval and French government support for further financing from the latter. This could be related to rumours that the French government could take a stake in PSA to match that of Dongfeng's. However, PSA has also yet to put in place a "major" asset-disposal plan to fund its restructuring that was agreed as part of the Commission agreeing to support the government guaranteeing future bond issues worth up to EUR7 billion (USD9.45 million) by its BPF arm.
It comes as no surprise though that Dongfeng would not want to be rushed into a deal to acquire a stake in PSA, and whatever deal is signed it will be keen to gain not only a financial return on its investment but also access to technology. An arrangement of this type would undoubtedly help move its own research and development (R&D) programme forward, and should give it a springboard to pass the local competition and come a serious contender to the joint ventures (JV) that dominate the market. Nevertheless, while this would likely help smooth the way through the Chinese regulatory process, it is unlikely to go down well with the French government which already has its hackles up at the thought of the sale of a significant stake in a French company being sold to a Chinese organisation. Nevertheless, given the reported stagnation of the deal there is no certainty at the moment that it will actually reach the point of completion.