Tag Archive | "Peugeot"

The Family Business Battle: How To Keep Your Legacy Alive

Via Forbes

Whether you’re a second generation manufacturer or running a global conglomerate like Peugeot, you’re taking on a unique challenge as a family business owner. You’re constantly balancing two priorities: the health of the business and the health of the family mission.

These concerns are tied at the hip and often at odds with one another. They bring to mind the quandary of a medic dedicated to tending a patient beset by assassins on every side. Some are gunning for shareholder value, some for the family interests – and without the right corporate structure, the assassins have free reign.

Consider that the default for corporate governance is that owners are obligated to maximize the value of the company. Some family businesses, however, have other long-term goals in mind. For example, we’ve seen one private company worth over $125 million embroiled in such a battle. Sixty percent of the ownership group was comprised of family members that wanted to pass the company on to the next generation. Forty percent was held by another family member and an independent group that wanted to obtain liquidity or similar economic return for their shares.

Even though they were in the minority, the “assassins” were able to assert that the ownership group was not maximizing value by holding onto the company. In the end, the majority owners faced a forced exit because the charter documents did not override the default fiduciary duty to maximize shareholder value.

What should they have done? To preserve the overarching goals of the family and the enterprise, owners should bake these provisions into their corporate documents. They can use specific language that permits Boards of Directors or Managers to prioritize factors beyond economic return. One proven path is to call out the highest priority goals,which often revolve around preserving family ownership, preserving the composition of stakeholders or preserving independence.

All of this holds true for family trusts as well, which are commonly tied to the business. Estate and corporate attorneys should get together to ensure the structure of the trust and the company are aligned, otherwise similar issues could arise that directly impact the family’s assets.

PSA Peugeot Citroen serves as a high-profile example of how family and business goals can derail centuries of work (although the company doesn’t necessarily have an issue with its governance documents). Nobody should point to Peugeot as a failed family business – 200 years building a megabrand goes a long way to solidify a place in history. If we boil the company’s current situation down to basics, though, we can apply it to a more fledgling operation.

The Peugeot patriarchs are down for the count at this point, as the Board decided to cede control in early 2014. The owners reduced their holdings and propped the door open for a Chinese company and the French government to step into power. The decision was no doubt a back breaker for the family, and, in fact, the New York Times reported that Thierry Peugeot, Chairman of the Board, was vocal in his dissent.

“In a public dispute rare for the usually tight-lipped clan, Thierry last month sent a letter to his brother Robert…protesting the ‘strategy of disengagement’… But in the end, according to a person close to the family, Thierry Peugeot found himself ‘very isolated,’ and he abstained from voting on Monday when the rest of the family voted to welcome the new investors.”

Questions about the decision continue to swirl, and there is healthy skepticism about whether the deal was necessary at all. Forbes pointed to an open letter by Max Warburton of Bernstein Research, which noted, “We don’t think this deal is strictly necessary. We don’t believe Peugeot-Citroen needs the capital as we’re convinced it can take further actions to reduce cash burn in 2014. We also fail to see the benefits for Dongfeng from taking a stake, other than looking like a potentially clever value investors.”

For Peugeot and for much younger family businesses, what’s the real priority? Clearly in the mind of Thierry Peugeot, this move didn’t line up with his vision. Was that vision spelled out? Was there a fracture around the family’s goals? M. Peugeot took on the role of the medic here, and he seems to have lost both patients.

All this, and the Peugeots still stand as an exception to the rule: family businesses rarely make it to the third generation. Owners who take care of the little things at the outset can better empower the family down the line. They may still end up in M. Peugeot’s chair someday, but the protections they put in place will provide more clarity when the tough calls must be made.

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Peugeot, GM Cement Alliance

PARIS – Auto maker PSA Peugeot Citroën SA will issue as many as 120.8 million new shares at a 42 percent discount from Monday’s average share price, under terms of the company’s capital increase of €1 billion ($1.32 billion).

The share sale includes an about €240 million investment by General Motors Co. for a 7 percent stake to cement their joint development and procurement alliance. Peugeot also said its financing arm, Banque PSA Finance, applied for €700 million in low-interest loans from the European Central Bank’s refinancing operation at the end of February, reported The Wall Street Journal.

“The capital increase is entirely designed to finance Peugeot’s strategic project with GM and will allow it to pursue its global expansion strategy and its plan to move its model range upmarket,” Chief Financial Officer Jean-Baptiste de Chatillon said on Tuesday.

Peugeot’s offer—giving shareholders the right to purchase 16 new shares for every 31 existing shares—will be open between March 8 and March 21, the company said. The family-controlled company said it won’t pay a 2011 dividend to bolster its finances.

Peugeot’s shares were down 3.5 percent at €13.71 in Paris on Tuesday, with some analysts warning of the significant dilution shareholders face from the capital increase and lack of a dividend. Peugeot and GM have also acknowledged slim initial financial benefits from the alliance even if annual cost savings could reach $2 billion a year in five years.

“Bottom line: such a dilution for the prospect of a long-dated payoff fuels our recommendation to sell the rights,” analysts at Barclays Capital said.

Mr. De Chatillon said the share price decline wasn’t surprising. “It’s true the share price has gone down a bit, but that’s normal in capital increases because of the dilution effect,” he said. “The news of the dividend [suspension] wasn’t expected by the market,” he added.

Peugeot and GM said they are seeking to address the problem of surplus capacity in Europe.

“We will deal with the overcapacity issue by 2014 notably in France and Spain where the overcapacity is most acute,” said Denis Martin, the head of Peugeot’s industrial operations. “We’ve already had a certain number of meetings with labor representatives in Europe and have put the overcapacity issue on the table,” Mr. Martin said.

GM Vice Chairman Stephen Girsky said on Tuesday that the U.S. auto maker also is in the middle of talks with unions about a fresh round of cost cuts.

“We’re trying to change the calculus here,” Mr. Girsky said. “This company has lost a lot of money [in Europe], and we know that running the same play the way we’ve been running it won’t work.”

The two auto makers expect each will generate significant cost savings at their struggling European car operations through their five-year alliance. The alliance will include sharing of vehicle architectures, components and the creation of a global procurement joint venture. Combined purchases will be about $125 billion a year, the companies said. They plan to build some vehicles together as soon as 2016.

Paris-based Peugeot is to become GM’s main partner in Europe and the two may consider broadening the partnership to other regions. They will continue to operate as separate companies and compete with each other in many markets. Longer term, the arrangement could lay the groundwork for a deeper partnership between the two.

But the deal isn’t an antidote to the companies’ financial troubles in Europe, which has GM undertaking a major restructuring in addition to Peugeot’s capital increase. Both companies have ruled out any deep changes to their operations in the short term while analysts have cautioned that the alliance doesn’t address the problem of chronic overcapacity, estimated at 20 percent or more, in Europe’s car industry.

Auto sales in Western Europe are down 14 percent since 2007. But in that time, among major auto makers, only GM and Fiat have closed a factory, one apiece. Matching production to sales would require eliminating 1.5 million vehicles worth of annual production capacity—the equivalent of five assembly plants, estimates Morgan Stanley.

The investment in Peugeot and cost-saving alliance is GM’s most significant manufacturing alliance since its 2009 bankruptcy. The auto maker has tried European partnerships in the past with mixed results. GM paid $2 billion to Fiat in 2005 to dissolve a failed alliance.

Following the rights issue, General Motors will hold 7 percent in Peugeot Citroën and the Peugeot family will remain the main shareholder, with 25.3 percent of capital and 37.9 percent of the voting rights.

Société Générale SA, BNP Paribas SA and Morgan Stanley are arranging the rights issue.

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Peugeot Considers Forging Broader Alliances

PARIS—PSA Peugeot Citroen would be interested in forging a deeper alliance with another automotive group under certain conditions as it struggles to increase sales and eke out profits in Europe’s oversupplied car market, but there are no talks currently under way, France’s largest car maker said Thursday.

“We don’t exclude the possibility of accelerating what we’re doing through a broader alliance,” Frederic Saint-Geours, head of the group’s Peugeot and Citroen brands told journalists.

Earlier Thursday, Peugeot said slack demand for small cars and tough price competition in Europe contributed to a 1.5 percent fall in vehicle sales to 3.5 million units in 2011. Sales in Europe fell 6.8 percent but were up 11 percent in Latin America, 7.7 percent in China, and 35 percent in Russia, reported The Wall Street Journal.

“We’re more focused on developing outside Europe than defending our market share in Europe,” Mr. Saint-Geours said. The group’s European market share fell 0.9 percentage point to 13.3 percent in 2011. Mr. Saint-Geours said European demand will remain subdued for at least three to four years.

Peugeot’s performance contrasts with booming sales at European rivals with higher-margin luxury line-ups, less exposed to Europe’s weak southern economies, such as BMW AG, Daimler AG, and Volkswagen AG. Peugeot derived 61 percent of last year’s sales from Europe whereas China has become a market as important for the VW brand as Europe.

Mr. Saint-Geours said allying Peugeot to another automaker would have to fulfil three criteria: It must be coherent with Peugeot’s strategy; it must create real synergies; and can’t jeopardize the company’s independence and finances. The Peugeot family controls the group through a 30 percent stake.

“We are quite open to the idea provided these conditions are met, but we have to find the right partner,” he said.

Fiat SpA chief executive Sergio Marchionne said earlier this week that Fiat is open to the idea of bulking up with another volume car maker to create economies of scale. Mr. Marchionne met with Peugeot Citroen chief executive Philippe Varin on the sidelines of the show, stirring speculation about some kind of link-up between the two auto makers.

Peugeot has industrial partnerships with several other auto makers, including Fiat, BMW, Ford Motor Co., and Japan’s Mitsubishi Motors Co. with which it had talks about a more far-reaching tie-up.

Those talks ended in 2010 when the two sides couldn’t agree on financial terms. Mass-market car makers have become increasingly dependent on partnerships to help defray the industry’s high capital costs.

Peugeot has said its automotive division’s losses in the second half of 2011 would more than offset the €405 million ($514.6 million) profit in the first six months. In October, Peugeot mapped out plans to slash costs by an extra €800 million involving thousands of job cuts in Europe.

That still may not be enough to restore the group’s automotive division’s operating profitability this year. “We anticipate a loss in autos of €500 million (in 2012),” David Lesne, an analyst at UBS said in a note Thursday.

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Fiat Eying Partner Before Chrysler IPO

Fiat SpA could bring on board a third partner before any initial public offering of its Chrysler unit as the group moves to reach its target of selling 6 million vehicles in 2014, Fiat CEO Sergio Marchionne said on Tuesday.

“It’s possible to do an alliance before an IPO,” Marchionne said on the sidelines of the Detroit auto show.

Marchionne, who has made Fiat one of Europe’s top turnaround stories, told Reuters in December it was possible Chrysler would have an IPO in 2013.

The Fiat head, who is also CEO of Chrysler, had said on Monday he would be willing to be part of consolidation that would create another car company in Europe rivaling Volkswagen AG in size.

Some industry watchers have expressed doubts that Fiat will be able to meet its 2014 sales target at a time of economic slowdown and austerity.

But Marchionne said talk of a planned alliance with Peugeot SA as speculation, saying only that he had had dinner with the French group’s CEO Philippe Varin in Detroit on Monday night.

At that meeting, the topic of an alliance was not discussed, he said, adding that a merger with Opel was also off the table.

Italian newspaper Il Corriere della Sera on Tuesday cited unnamed well-placed sources as saying Peugeot was ready to negotiate an alliance with the Fiat group.

Peugeot, Europe’s second-biggest automaker after Volkswagen, declined to comment on the report.

An Italian analyst, who declined to be named, said an alliance with Peugeot would be positive and could help reduce costs, but would be a hard sell, as it would mean factory closures in both countries.

Fiat and Peugeot have ties dating back to the 1970s, with Peugeot plants in France having produced small vans and parts for the Italian group.

Shares in Fiat, which owns 58.5 percent of Chrysler, closed up 5.5 percent at 3.936 euros, outperforming the wider European car sector .SXAP, which was up 3.7 percent.

Peugeot shares jumped 5.6 percent to 12.92 euros.

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