Philippe Varin, outgoing CEO of PSA Peugeot Citroen, speaks during a press conference about the Dongfeng deal at the end of the company's 2013 results presentation in Paris Feb 19, 2014. PSA Peugeot Citroen plans to build new cars and expand in Asia under a French-backed rescue deal agreed with China's Dongfeng, the carmaker said on Wednesday. [Photo / Agencies]

Dongfeng Motor's purchase of a stake in French firm will allow it access to new technology and markets, report Li Fangfang in Beijing and Li Xiang in Paris

China's second-largest vehicle producer, Dongfeng Motor Corp, has purchased a 14.1 percent stake in French automaker PSA Peugeot Citroen for 800 million euros ($1.09 billion), the largest foreign acquisition so far by a Chinese State-owned company.

According to Dongfeng's statement to the Hong Kong stock exchange on Wednesday, the two parties have signed a memorandum of understanding.

Under that MOU, the Chinese company will subscribe to shares to be issued by Peugeot to increase its capital reserve at 7.5 euros per share, for a total subscription price of 524 million euros.

France to inject $1b in Peugeot

Peugeot family approves draft Dongfeng deal

Dongfeng also agreed to spend another 276 million euros to buy shares pursuant to a Peugeot rights issue.

The French government is also expected to acquire 14.1 percent of Peugeot's shares.

A new committee overseeing development in Asia will be established within the supervisory board of Peugeot, with a representative of Dongfeng to serve as chairman.

The deal ends the Peugeot family's dominance of the company. Dongfeng, the French government and the family will each hold the same number of shares and have the same voting rights at the company's general meetings.

Although the capital injections from Dongfeng and France still require approval by regulators in their respective countries, Peugeot said that the agreement will be signed on March 26, and the deal will be concluded before April 30.

Peugeot also announced during a news briefing in Paris on Wednesday that the company's net loss had narrowed from 5.01 billion euros in 2012 to 2.32 billion euros last year.

"We have gone through some very challenging years for the European automotive industry, which have added to the group's structural difficulties, notably its over-dependence on Europe.

"We vigorously implemented difficult restructuring measures, which are now starting to bear fruit," said Philippe Varin, chairman of the PSA Peugeot Citroen managing board.

"The globalization process is proceeding apace, with in particular an excellent performance in China. With today's announcements, we are giving a new impetus to our group, with an ambitious industrial and commercial plan and solid financial resources."

In 2014, Peugeot expects growth in automotive demand to be about 2 percent in Europe and about 10 percent in China.

The company aims to increase its production capacity to 750,000 units in China by 2015 and to double its network of dealers in the Chinese market, according to Varin.

 

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