PSA Peugeot Citroen, the French automaker weighing an investment in Mitsubishi Motors Corp., may find it difficult to raise money for a stake purchase and to make a case for what analysts say would be an expensive deal.
Buying a 50 percent holding may stretch the finances of Europe's second-largest automaker, which had 2 billion euros ($3 billion) in net debt in the manufacturing and sales divisions as of June 30 and bonds rated below investment grade by Standard & Poor's. The companies have similar market valuations of about $8.5 billion, while Peugeot sells three times as many vehicles and garners four times as much revenue.
"Peugeot doesn't have the liquidity to take a major Mitsubishi stake in cash," said Jens Schattner, a Frankfurt- based analyst at Sal. Oppenheim with a "reduce" rating on the French manufacturer's shares. He predicted that the companies will abandon talks about an equity deal and instead develop further cooperation on building cars.
Peugeot said Dec. 3 it's holding exploratory discussions that could lead to the purchase of a Mitsubishi stake. The Japanese carmaker's shares have soared more than 14 percent since the announcement, while the Paris-based manufacturer's stock has declined 1.8 percent.
Mitsubishi Motors fell 2.2 percent to 136 yen as of 9:39 a.m. in Tokyo. Peugeot dropped 0.2 percent to 24.14 euros yesterday in Paris.
Peugeot Conditions
"Raising the finance would not be a walk in the park," said Eric-Alain Michelis, an analyst at Societe Generale in Paris. Depending on bank support, Peugeot may have to issue new shares to pay for a large stake, he said. "It's a tough, tough one."
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