March 25, 2023

DealBook: Peugeot in Talks to Sell Gefco to Russian Railways

A Citroen C3 is assembled at PSA Peugeot Citroën's plant in Poissy, France.Benoit Tessier/ReutersA Citroen C3 is assembled at PSA Peugeot Citroën’s plant in Poissy, France.

PARIS — The French automaker PSA Peugeot Citroën said Thursday that it was negotiating to sell its Gefco logistics business to J.S.C. Russian Railways as it struggles to stay afloat in the faltering European car market.

PSA Peugeot Citroën, the second-largest automaker in Europe after Volkswagen, has entered exclusive negotiations to sell 75 percent of Gefco for 800 million euros, or about $1 billion. If the deal is completed, Gefco would also pay Peugeot a special dividend of 100 million euros.

The French automaker is reeling from its heavy exposure to the European market and its dependence on relatively low-margin models. New passenger car registrations were down 7.1 percent this year in Europe. With the euro zone in recession and the future of the currency itself uncertain, analysts were not predicting a quick turnaround.

A Finance Ministry report commissioned by President François Hollande this month found that Peugeot needed to move quickly to close a French factory and cut thousands of jobs. In a country where mass layoffs are discouraged, it was an indication of the gravity of the situation.

Fitch Ratings cut its rating on Peugeot on Wednesday, saying that it expected the company to burn cash through 2014 and that it was concerned about the carmaker’s ability to compete in the market for small and medium-size cars. Fitch said it was unlikely that “the ongoing fierce competition and substantial price pressure” will abate in the near term.

Peugeot said the deal, which is contingent on regulatory approval, would help Gefco to grow in China, India, Latin America, as well as in Eastern and Central Europe, and particularly Russia.

Earlier this year, Gefco, which had sales of 3.8 billion euros in 2011 (about $4.9 billion), signed an exclusive long-term contract with Peugeot’s automotive division. In late June, it reached a similar deal with General Motors Europe to supply factories in Poland, Spain, Britain, Germany and Russia and annually ship 1.2 million finished vehicles around the world.

For the Russians, the acquisition is a foothold in Europe that is important strategically despite the weakness in the economy that is troubling Peugeot. J.S.C. Russian Railways, known as RZD, wants to develop an overland freight service between Asia and Europe for cargo that now travels a more circuitous journey by water.

“Russian Railways can offer competitive transportation services along this route after undertaking a significant amount of work recently,” RZD said in a statement about the talks with Peugeot. “The next logical step is to develop a sales network for transit transcontinental transportation services via an international logistics company.”

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