Peugeot Owner's CEO Said to Seek Deals After Reviving Europe

(Bloomberg) -- PSA Group is too small to satisfy the global ambitions of Chief Executive Officer Carlos Tavares.

The French maker of Peugeot, Citroen and Opel cars is seeking a deal that will expand its footprint outside of Europe, according to people familiar with the matter. Tavares has met with advisers to consider potential collaborations or mergers, said the people, who asked not to be identified because the matter is private.

Peugeot Owner's CEO Said to Seek Deals After Reviving Europe

The deliberations are very preliminary and potential targets haven’t recently been approached, the people said. Fiat Chrysler Automobiles NV is attractive to PSA for its exposure to the U.S. and its premium Jeep brand, but Tavares also sees General Motors Co. as a good fit and Jaguar Land Rover as a possibility, the people said, while cautioning that such deals would be difficult to reach.

A spokesman for PSA declined to comment on any specific plans, declined to make Tavares available ahead of the Geneva car show this week. He referred to the CEO’s comments at an earnings press conference last week, when Tavares, asked about plans for about 9 billion euros ($10.2 billion) in net cash, said that strategic opportunities were “open for discussion,” while cautioning the money would also help in a downturn.

“We think we are in a good position both in terms of running the operations and also in terms of strategic vision” with regard to electrification, autonomous driving and mobility, Tavares said on Feb. 26. “We have done our homework, and we think we are on the right path.”

Spokesmen for Fiat Chrysler and JLR owner Tata Motors Ltd. declined to comment. A GM spokesman didn’t immediately respond to a request for comment.

PSA shares pared gains after Bloomberg reported on the plans and were up 0.9 percent at 4:24 p.m. in Paris. Fiat Chrysler was down 0.9 percent in Milan. GM shares traded as much as 0.4 percent lower before midday in New York.

Manufacturers are under intense pressure to combine efforts on the slowing market for combustion-driven vehicles, to save cash for expensive new technologies like electrification, autonomous driving and app-based services. With more signs that sales volume has peaked, Ford Motor Co. and Volkswagen AG are working toward a broad partnership that would include commercial vehicles and autonomous driving, while BMW AG and Daimler AG are collaborating on a range of shared- and self-driving efforts.

Tavares, who in five years at the helm has turned around the flagship Peugeot brand and GM castoff Opel, still relies on Europe for more than 80 percent of PSA’s unit sales. A U.S. partner would potentially further Tavares’s plan, announced last week, to bring the Peugeot brand back to North America. The company, which makes the 308 compact and 3008 SUV, plans to ship vehicles in from Europe or China from 2026. An alliance could pave the way for local production without a prohibitive investment.

A deal would also help PSA build scale. The French company sold 3.9 million cars last year, enough to qualify as a volume producer but nowhere near the 10 million-plus that VW, Toyota Motor Corp. and the Renault-Nissan-Mitsubishi alliance churned out, giving them added leverage to squeeze out costs.

Fiat, GM, JLR

Italian American carmaker Fiat Chrysler is focused on steadying the management team and operations since former CEO Sergio Marchionne passed away in July, the people said. It hasn’t held any recent discussions with PSA regarding a combination, they said. Fiat and Peugeot extended their van cooperation to include vehicles under the French manufacturer’s Opel and Vauxhall brands in February.

GM has little interest in the European market, two of the people said. Under CEO Mary Barra, the U.S. automaker has been shedding low-margin businesses and investing in self-drive technology and mobility services instead. Merging with or acquiring PSA would be a complete reversal -- and is something GM could have pursued when it sold Opel to the French company two years ago, said one of the people.

Despite the obstacles, analysts have started to speculate on options for PSA. At J.P. Morgan Securities, analysts including Jose Asumendi suggest a European passenger-car partnership with Ford or a cooperation deal with JLR as potential solutions. Jefferies International Ltd. analyst Philippe Houchois, in a note on Monday, also suggested JLR as a possibility.

Bloomberg News reported last week that Tata is exploring options for JLR -- including the sale of a minority stake in the struggling British carmaker. The U.S. is its biggest market, while China, which has slumped recently, is still among its largest. Both the Jaguar sports car and luxury Land Rover nameplates would bring PSA the cachet it’s seeking to layer over its efficient production platform, where Tavares has lowered costs, and has made plans for electric cars.

Tata said last week that there’s “no truth to rumors that Tata Motors is looking to divest its stake in JLR,” while declining to elaborate.

“Given high earnings, the equity story is shifting to strategic opportunities,” he said.

©2019 Bloomberg L.P.

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