March 6, 2012 5:13 pm

GM/Peugeot: change of gear

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Is this a prudent start to something big, or disappointingly unambitious?

General Motors and PSA Peugeot Citroën have been moving up through the gears – so far fairly smoothly – as they unveil more details of their proposed partnership. The planned €1bn capital-raising by the French company is being done via a deeply discounted rights issue. That may suggest some underwriting caution. Shareholders, however, should theoretically be agnostic on the size of the discount and – at 32 per cent to the theoretical ex-rights price – it is in line with other significant capital-raisings done in the French market since 2008. GM, meanwhile, will pay just over €300m for its 7 per cent stake in Peugeot, largely by acquiring some of the Peugeot family’s rights.

A separate GM filing, meanwhile, suggests that the two companies have at least four joint products in view, aside from the core joint purchasing plan, with its modest goal of $2bn in savings on a $125bn combined budget. All of which leaves investors to puzzle over whether this is a prudent start to something big, or a disappointingly unambitious response to industry conditions. Corporate history is littered with automaker alliances that promised too much and delivered too little. (See Daimler/Chrysler or BMW/Rover.) And there have also been plenty where commercial co-operation has foundered because of ownership issues – GM/Fiat or the current friction between Suzuki and Volkswagen. So the companies may lose little by taking things slowly on that front.

More fundamentally, though, the arrangement has helped Peugeot establish some financial stability. The Peugeot family’s willingness to accept modest dilution may also be positive, although in retaining almost 38 per cent of the voting rights it has given up little. But the risks are the time it will take for synergies to flow and, above all, uncertainty over whether the alliance will ultimately help in reducing European overcapacity.

Email the Lex team in confidence at lex@ft.com

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