PSA Peugeot Citroen and China’s Dongfeng have agreed a 3-billion-euro (US$4.1 billion) capital tie-up that brings the troubled French carmaker new leadership, more time to turn its business around and an end to two centuries of family control.

    Peugeot, Dongfeng Motor Group Co. and the French Government have signed a non-binding outline agreement, China’s second-biggest carmaker announced yesterday.

    Peugeot chief executive Philippe Varin and former Renault executive Carlos Tavares, who will replace Varin when the deal is finalized, must now explain how the fresh capital can be used to improve the bottom line, analysts said.

    “Expectations are running high,” London-based ISI Group analyst Erich Hauser said in a note. “PSA Peugeot needs to show a new equity story to keep investors interested.”

    Under the memorandum of understanding signed Tuesday, Dongfeng and the French state will each pay about 800 million euros for a 14 percent stake in a reserved share sale and a rights issue, Dongfeng said.

    Existing shareholders will get warrants entitling them to more stock at the same 7.50-euro price as the reserved issue, a 40 percent discount to their market value, raising up to a further billion euros.

    The Peugeot family will see its 25.4 percent stake and 38 percent of voting rights diluted to parity with Dongfeng and the French state, ceding control of the company it founded in 1810 as a maker of tools and coffee mills.

    The rescue deal and an expected new lending partnership with Banco Santander will help Peugeot survive the expiration next year of 7 billion euros in state guarantees keeping its lending arm afloat.

    Dongfeng is the latest Chinese carmaker to take a significant stake in a Western peer after Zhejiang Geely Holding bought Sweden’s Volvo Car in 2010 and SAIC Group acquired South Korea’s SSangyong.

    Besides putting some of its 24 billion yuan (US$3.96 billion) in cash reserves to work, some analysts have questioned what the Chinese carmaker and its own Fengshen line of vehicles stand to gain from the tie-up. (SD-Agencies)