GM reveals plans to sell Peugeot stake

PSA Peugeot Citroen fell sharply 12 per cent following General Motors Co (GM) announcing plans to sell its entire Peugeot stake even as the French car maker sought financial help from its Chinese partner, Dongfeng.

GM had acquired the 7-per cent holding last year as part of an alliance formed by the two companies to improve their results.

Since then, the partnership had struggled to meet the original goals, with Peugeot saying yesterday that savings from the cooperation would be 40-per cent lower than the amount originally planned.

The scaled-back alliance and persistent losses had led Peugeot to seek a deeper cooperation with Chinese partner Dongfeng Motor Corp bolster sales in growth markets.

GM yesterday said, it would support Peugeot as it aligned with another automaker in the event their existing partnership continued.

Bloomberg quoted, Erich Hauser, an analyst with International Strategy and Investment Group in London as saying, GM's exit could make it easier at the end of the day to get a deal with Dongfeng, since GM and Dongfeng were direct competitors in China. The timing, though was not ideal for Peugeot and raised questions about the future of their cooperation.

Meanwhile, Citroen said yesterday that it took a €1.1 billion euro ($1.52 billion) writedown at its ailing overseas operations.

GM said it would not stand in the way of a deal with Dongfeng, insisting that industrial cooperation with Peugeot remained strong.

Peugeot and GM also scaled back goals for their down-sized alliance yesterday, as the Paris-based carmaker acknowledged it was seeking a deal with Dongfeng.

Peugeot, among the worst hit car makers in the economic slump and six-year car sales decline, was in the process of cutting jobs and plant capacity as it attempted to halt losses within two years.

The company's shares plunged on the writedown and following a source telling Reuters the board had approved the outlines of the Dongfeng deal with a €3.5 billion euro capital increase at a discount of around 40 per cent.

Reuters quoted London-based Barclays analyst Kristina Church as saying, no matter how the deal was structured, the firm did not see anything positive in today's news on Peugeot.