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Peugeot Citroen deal shows French families need to think global, says business expert

By Jessica Tasman-Jones

The recapitalisation of French family business PSA Peugeot Citroen sends a message to other family firms that they need to join forces with foreigners to survive in the modern world, says a business and corporate governance expert based in France.

This week the Peugeot family announced it was diluting its shares in the carmaker, France’s largest family business, from its existing 25% holding and 38% voting rights.

The family business, founded more than 200 years ago, began as a coffee grinder and bicycle manufacturer before producing its first car in 1889. In 1974, it bought a 30% stake in rival French carmaker Citroen, before taking it over completely the following year.

This week, the company announced it has signed a deal to receive a €1.6 billion cash injection from the French government and Chinese state-controlled car company Dongfeng.

In return, they will both get a 14% stake in the company, and the Peugeot family’s stake will also reduce to 14%.

Last year, the family empire’s revenues were down 2.4% to €54.1 billion, with the company admitting it had been relying too heavily on Europe’s languishing markets, and its presence in new markets, such as Asia, lagged behind some of its competitors.

Ludo Van der Heyden, Mubadala professor of corporate governance and strategy at Insead and director of the business school’s Corporate Governance Initiative, said Peugeot had performed well in its sector until the French crisis, noting that it was a very innovative company.

But Van der Heyden explained: “Peugeot is too confined to France, the country is doing economically very poorly, and that has made Peugeot vulnerable.”

“The message to French families is interesting: to conquer, or merely to survive in the modern world, we need to ally with foreigners,” he added, pointing out that French rival Renault was in much better financial shape than Peugeot due to an alliance made with Japanese company Nissan in 2000.

He said: “If you think of the successful family firms, they have really played the global scene. The most successful one is [Bernard] Arnault’s LVMH, and LVMH is truly global today. If you look at the Pinault family, they have done the same, all the luxury guys have gone international.”

Family businesses account for approximately 80% of all companies in France, but studies have shown French family firms are reluctant to hand over control to non-family bosses.

Van der Heyden believed the Peugeot family would still be able to guide the course of the carmaker; however, its strategy would have to be negotiated with its two main partners – and then with minority shareholders.

However, some French media have referred to the new deal as a “three-headed monster”. An opinion piece in French financial newspaper Les Echos, by French politician Robert Rochefort, for example, said Dongfeng would come with its own strategic intentions.

The Democratic Movement politician said given the exponential growth of China, compared to France’s stagnant markets, research and development in the Peugeot group would tip towards Asia in the next few years under the new deal.

Van der Heyden said the most important thing now is for Peugeot’s three main shareholders to craft and agree on a joint statement, to signal that they are aligned around one strategy.

He said the fact the government had bought part of the company meant there was the opportunity for the family to buy back the state’s share in the future, but he said while this might be the wish of Thierry Peugeot, chairman of the supervisory board, other family shareholders did not appear to be so keen.

In March 2012, the family gave up a fifth of its voting stake in the company, which had been 48%, to raise €1 billion, and General Motors became the second largest shareholder with a 7% stake.

That same year, the French government released a report in response to planned job cuts at Peugeot, criticising the family for being too reliant on European markets and being slow to develop international alliances.

GM announced it was selling its entire stake in the company last December.

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