Oh no, Peugeot! Shares Stumble Ahead of Possible Deal

The French car company PSA Peugeot Citroën faced a fresh setback Monday. Shares fell 9.1 percent following a Reuters announcement that the company was to receive a 3 billion euros ($4 billion) influx of capital.  According to Automotive News report, this would be the result of China’s Dongfeng Motor Corp. and the French government buying matching stakes in the company.

Stock value would be diluted by the fresh infusion of money, and is behind the drop in shares seen this afternoon. It is the latest in what has been a rocky path for the company. Automotive News also detailed what has been less than smooth sailing between the French car company and General Motors Company (NYSE: GM).

First, GM nixed plans for Peugeot to manufacture a larger car. If Peugeot had attempted to move forward on the project, GM said their Chinese affiliate Shanghai Automotive Industry Corporation (or, SAIC) would have vetoed it. Then in June, the French government sanctioned a restructuring plan for Peugeot, that would have tied it to the Opel division of GM. Again, GM refused, saying that such an alliance could pose problems politically, because the U.S. government maintains a 7.3 percent ownership of GM.

In the long term, if the deal with Dongfeng and the government succeeds, it could prove beneficial to all parties. GM’s stake in a vexing partnership would be lessened, easing business dealings for it and Peugeot. By entering into a partnership with Peugeot, Dongfeng can reach a broader market, and access French technology.

Putting a positive spin on Peugeot’s finances is French Finance Minister Pierre Moscovici. The New York Times reported on an interview he gave to France Inter radio Monday. The Minister said it was “no mystery that Peugeot is looking for industrial partners” and there was no danger of an immediate hardship for the company.  It is hard to believe this rosy pre-deal picture when, as Bloomberg points out, Peugeot is closing one of their factories outside of Paris, and laid-off 11,200 French workers this year.

Deal or no deal, immediate gains came to one group, traders who had been betting against Peugeot success. These short sellers, the Chicago Tribune says, found success today, with the drop in shares representing the company losing a tenth of its value.

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