The cooperation memorandum of understanding between Dongfeng and PSA signed on the 18th of this month covers a lot of contents from equity acquisition to R&D. However, from the information currently disclosed by the company, the huge amount of money to support PSA is mainly aimed at the Asian market.
According to insiders from Dongfeng, the cooperation negotiation between the two parties started as early as last July. On July 2, 2013, PSA, which was deeply in financial distress, proposed cooperation intentions to Dongfeng. Due to the good momentum of development of Shenlong Automobile in recent years, China believes that the problems encountered by PSA should be resolved as soon as possible so as not to affect the joint venture company.
"After nearly eight months, dozens of high-intensity and high-density negotiations, and even on Christmas Day and the Spring Festival, both parties are engaged in intense consultations and negotiations. The top level of the two sides also have frequent contacts and talks. We have resolved our differences in the negotiation process and reached a consensus, said Liao Zhenbo, director of the Strategic Planning Department of Dongfeng Motor Corporation.
From the perspective of stock prices, Dongfeng’s share price of PSA is 7.5 euros per share, which is a 40% discount to the PSA’s stock price of 12.5 euros on the date of signing. Upon completion of the share subscription, the PSA Board of Supervisors will have eight independent supervisors, of whom Dongfeng, the French government and the Peugeot family will each take two seats, a staff representative and a staff shareholder, and there will be six external independent supervisors. Dongfeng's supervisors will serve as the vice chairman of the board of supervisors.
Due to the downturn in the European market, PSA is suffering continuous losses. In 2012, the company’s loss amounted to 5.01 billion euros, and its loss in 2013 narrowed, but it was still as high as 2.32 billion euros. For Dongfeng, what it wants to obtain most from this transaction is not the high investment return, but rather the intention of developing product technology and internationalization.
According to PSA's current management system, the board of supervisors has jurisdiction over the remuneration and nomination committee, the audit committee, and the strategy committee. After the Dongfeng Corporation shares PSA, the Board of Supervisors will establish a new Asian Business Development Committee. The committee consists of four committees, and Dongfeng will serve as chairman of the Asian Business Development Committee. In other words, Dongfeng is expected to dominate the decision-making of PSA Asia. This will have a profound impact on the development strategy of Shenlong Motors.
Under the new cooperation framework of the parent company, with direct and indirect holdings included, Dongfeng Motor’s actual control over Shenlong Motors will exceed 50%. This is rare in China's joint venture vehicle companies. It is likely to create a new model of joint venture development.
In terms of brand, Shenlong Motors will produce Dongfeng, Peugeot, and Citroen models. Each brand will launch a new car each year. In terms of technology development, according to the memorandum of understanding, Dongfeng will establish a joint venture R&D center with PSA in China. Based on the current PSA Asia Pacific R&D center, the center will cover the full value chain system and achieve intellectual property sharing of R&D results.
In sales management, PSA's import and sales network in China will be integrated into Shenlong's domestic sales channels. Not only that, Dongfeng will also establish Asia Pacific Sales Company with PSA to conduct business across Asia. Dongfeng hopes to use PSA to export in Asia, South America, and Russia. Asia, especially the ASEAN market, will be the beginning of cooperation between the two sides.
Dongfeng hopes to take advantage of PSA's influence in the global market to take an important step in its internationalization strategy. The return that PSA can get is higher market growth in China and Asia. The goal of Shenlong Motors is to double production and sales to 1,500 vehicles by 2020. This will provide important support for PSA out of the downturn in the entire vehicle business.
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