AutoBeta(AutoBeta.net)12/07 Report--

Dongfeng Motor may cut its stake in PSA, Reuters reported, citing people familiar with the matter, in a move intended to facilitate a merger deal between PSA and FCA to ease regulatory scrutiny of the PSA and FCA merger.

On October 31, PSA and Fiat Chrysler Group (FCA) issued a statement that the two sides would create a new car company with a 50:50 share ratio each, which would become the world's fourth-largest automaker in terms of vehicle output, with annual sales of 8.7 million vehicles and annual revenue of 170 billion euros. The merger agreement is expected to be signed as early as December 25, but a full merger would require approval from local antitrust authorities, a process that could take about a year.

PSA has said that after signing the memorandum of understanding, the merger is expected to take 12-14 months to complete, and if the merger agreement is signed in December, it is expected to start operations by the end of 2020 or early 2021.

Dongfeng Motor's reduction in PSA shares will help facilitate US regulatory approval of the merger of PSA and FCA. At present, Dongfeng Motor owns 12.2% of Peugeot Citroen Group, worth about 17.4 billion yuan, and owns 19.5% of the voting rights of the company. After PSA and FCA complete the merger, Dongfeng Motor may own about 6% of the shares of the new company.

In fact, on August 7 this year, there were media reports that Dongfeng Motor planned to sell its PSA shares, triggering heated debate in the auto industry. Dongfeng Motor Group has met with advisers to discuss the possibility of liquidating some or all of its 12.2 percent stake in PSA as part of a strategic review, including selling PSA shares directly or issuing PSA stock exchangeable bonds, the report said.

At that time, Dongfeng Motor officials clarified the report, saying that the sale of PSA shares was false news. Four months later, Dongfeng Motor was once again rumored to sell PSA shares, and after PSA and FCA announced their merger, neither PSA nor Dongfeng Motor responded to relevant reports.

According to the data, Dongfeng Motor, French government and Peugeot family companies signed a memorandum of understanding with PSA Group in 2014. The French government and Dongfeng Motor respectively injected 800 million euros to subscribe PSA shares. After the transaction, Dongfeng Motor, the French government and the Peugeot family holding company became PSA's three largest shareholders, each holding 14%.

After Dongfeng Motor acquired part of PSA shares, the two sides established a joint venture in China-Shenlong Automobile. However, due to the market downturn and insufficient product strength, the development of Shenlong Automobile in China has been severely hit.

According to the data disclosed by Dongfeng Motor, the sales volume of Shenlong Automobile in October this year was 9730 vehicles, down 47.4% year-on-year, and the cumulative sales volume from January to October this year was 100779 vehicles, down 54.83% year-on-year.

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