Peugeot posts 2.3-bn-euro loss amid tie up with China's Dongfeng

(PARIS) - Peugeot Citroen halved losses last year, the car giant announced on Wednesday along with a shareholder tie-up with China's Dongfeng and the French state ending one of France's oldest industrial dynasties.

The shareholder deal, tied up late on Tuesday, means that Peugeot Citroen will raise at least 3.0 billion euros ($4.13 billion) of new capital with the issue of new shares.

The stricken group, counting on the Chinese market and new hybrid compressed-air technology, revealed the biggest steps so far in its strategy to climb out of a crisis which brought it close to disaster.

Net losses last year still amounted to 2.3 billion euros, but that was less than half the figure of 5.0 billion euros in 2012.

That was after the 200-year-old group, the second-biggest carmaker in Europe, took a series of crisis cost-cutting measures to save 1.5 billion euros.

Shares in the group jumped by 7.88 percent to 13.46 euros, with investors welcoming the cut in the net loss and the recapitalisation deals.

The group, criticised by a government enquiry for missing opportunities of globalisation for many years, declared that this new chapter would accelerate "its globalisation and emerging markets expansion strategy, while reinforcing its financial strength."

The group had been burning up cash so fast that the French government had become concerned about its capacity to survive, but wanted to ensure it remained under majority French control.

In the latest buy-in of a Chinese giant to a struggling Western firm, Peugeot announced that Chinese state-controlled Dongfeng and the French government would each inject 800 million euros ($1.1 billion) for 14-percent stakes in the company.

The Peugeot family -- which has controlled the firm since its founding in 1810 as a maker of coffee mills and bicycles -- will see its 25-percent stake and 38-percent voting rights diluted to the same amount as the stakes for the government and Chinese state-controlled Dongfeng.

- 'Very difficult years' -

"We have experienced some very difficult years for the automobile industry in Europe, which amplified the structural difficulties in our Group, too focused on the European continent," said outgoing chief executive Philippe Varin.

"We reacted vigorously with difficult restructuring, of which we are starting to see the fruits ... internationalisation has followed with notably an excellent performance recorded in China.

"With the announcements today we give new momentum to our group, fortified by an ambitious commercial and industrial project and consolidated financial means."

The deal will come to Peugeot's rescue after the group, number two in Europe after German giant VW and the biggest automaker in France, was in effect rescued by the French state with guarantees of 7.0 billion euros for its credit arm.

Peugeot has been among the hardest hit by a European slump in car sales, and has had to cut thousands of jobs.

For China, where Dongfeng is the second-biggest automaker, the agreement marks the latest high-profile acquisition by the economic powerhouse of a Western company.

Last month, Chinese tech giant Lenovo bought Motorola from Google in $2.9 billion deal.

None of the three main shareholders would be allowed to increase its stake for 10 years -- seen as an effort to limit Dongfeng's influence at Peugeot, which employs nearly 90,000 people in France.

The final deal is expected to be signed at the end of next month during a visit by Chinese President Xi Jinping to Paris.

The company is hoping the link with Dongfeng will give it a boost in the vast Chinese car market.

PSA Peugeot Citroen also has high hopes for a new technology it has developed for hybrid cars using conventional engines which convert excess energy into compressed air, reducing overall fuel consumption.

Dongfeng Motor Corp., founded in 1969 and whose name means "East Wind", sold 3.53 million vehicles in China in 2013, giving it a 16-percent market share.

Industrial Renewal Minister Arnaud Montebourg said: "We have taken a decision of economic and industrial patriotism."

He said Peugeot had committed to producing a million vehicles a year in France by 2016 and investing 1.5 billion euros in French factories.

- 'It saves our bacon' -

At Peugeot's historic Sochaux plant in the eastern Franche-Comte region, workers welcomed the reorganisation but expressed fears the deal would eventually see their jobs relocated to China.

"In the workshops people are saying we are going to be gobbled up by the Chinese," said Christian, 57, one of the factory's 11,500 workers.

But "if it saves our bacon, that's a good thing."