Peugeot shareholders back plan for $4.2 billion capital hike

Tavares plans to cut Peugeot's lineup by almost half and turn Citroen's DS badge into a separate premium brand.

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PARIS (Bloomberg) -- PSA Peugeot Citroen owners voted to support a 3 billion-euro ($4.2 billion) capital increase to boost funding at Europe's second-largest carmaker, which has been unprofitable for the last two years.

Shareholders signed off today on the agreement under which Dongfeng Motor Corp. and the French state will pay about 800 million euros apiece for 14 percent stakes each, the automaker said at its annual meeting in Paris.

The Peugeot family's holding in the company will fall to 14 percent from 25.5 percent as part of the deal. The French manufacturer is teaming up with Chinese manufacturer Dongfeng to expand outside Europe, where demand is recovering from a two-decade low.

CEO Carlos Tavares, who took over a month ago, is also working to reduce costs and streamline product offerings to focus on more profitable models.

Peugeot earlier today reported first-quarter revenue gained 1.9 percent to 13.3 billion euros as a recovery in its home region and expansion in China boosted sales.

Deliveries in the period gained 16 percent in Europe and 18 percent in China.

"Our priority is to make our group profitable again," CFO Jean-Baptiste de Chatillon told reporters during a conference call. "Our first focus is our pricing power and the strict management of our prices."

Peugeot shares fell 48 cents, or 3.6 percent, to 12.82 euros at the close of trading in Paris. The stock has gained 36 percent this year, valuing the French manufacturer at 4.55 billion euros.

Europe recovery

Peugeot forecasts that Europe's car market will increase 3 percent in 2014. The automaker was among those hardest hit as the region's auto sales contracted for six straight years, with the company's market share narrowing to 10.9 percent in 2013 from 12.8 percent in 2007.

Tavares said two weeks ago that he will cut Peugeot's lineup by almost half and turn Citroen's DS badge into a separate premium brand.

The new CEO also pledged to reorganize sales operations along geographical lines and reiterated a target to triple Chinese deliveries in partnership with Dongfeng by 2020, along with restoring profit in Russia and Latin America.

Tavares joined Peugeot in January from Renault SA, where he was COO, to succeed Philippe Varin as CEO. The new business plan puts Tavares's stamp on the carmaker's revival after Varin, 61, arranged to bring in the outside investors and started developing up-market models for the Peugeot brand, in addition to bringing out the DS cars.

New models

Varin responded to Europe's downturn by cutting jobs in France, shutting a plant near Paris and bringing out new models, such as the 2008 compact SUV.

The automaker sold 40,000 of the model in the first quarter and is increasing production at the plant where the SUV is built. Peugeot has received 70,000 orders for the 308 hatchback, which in March won Europe's Car of the Year award at the Geneva auto show.

The Citroen brand's C4 Picasso is also selling well, with 60,000 orders for the five-seater and 35,000 for the seven- seater, the automaker said today.

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