The PSA Peugeot Citroen board announced on February 18 that it approved a deal that will give China Dongfeng Motor Co. a 14 percent share and two seats on its board in exchange for $1.1 billion. Peugeot also announced that it has entered into the same agreement with the French government. As a result, the Peugeot family, who has controlled the company for 118 years, will have their 38.1 percent share reduced to 14 percent and will also lose two of their board seats.

News of negotiations between Peugeot and Dongfeng first broke in October 2013 when the China Business News reported that Dongfeng was planning to purchase a 30 percent stake in Peugeot for $1.6 billion. It was also reported around this time that Peugeot hoped to receive a combined $4.1 billion from both Dongfeng and the French government.

Dongfeng and Peugeot have been involved in a joint venture partnership since 1992, and analysts say it makes sense for Peugeot to reach out to its Chinese partner for a cash infusion to stem its mounting financial troubles. Peugeot reported a loss of $6.86 billion in 2012, and the company’s 2013 loss will be close to $2.3 billion, according to the Wall Street Journal.

Peugeot hopes that its deepened partnership with Dongfeng will allow it to expand into more Asian markets and rely less on the stagnating European car market. Peugeot saw its China sales rise 26 percent last year while its European sales dropped 8.4 percent. Dongfeng and Peugeot currently produce vehicles at four manufacturing plants in China with a target goal of selling 1.5 million vehicles per year after 2020.

Posted by Catherine Matacic