China’s Dongfeng Motor Group Co. Ltd and PSA Peugeot Citroen agreed yesterday to a capital tie-up as part of a broader €3 billion fundraising that will end the Peugeot family’s control of the 200-year-old French carmaker, a source said.

The non-binding memorandum of understanding specifies that China’s second-biggest carmaker and the French government each will inject €800 million for 14 per cent stakes in PSA Peugeot, a Dongfeng executive with direct knowledge of the talks said.

Peugeot will also sell new shares to existing shareholders, bringing the total fundraising effort to €3 billion, the source said, confirming earlier reports. The source declined to be identified because the information was not yet public.

The rescue deal will help Peugeot – founded in 1810 as a maker of tools and coffee grinders – survive the withdrawal next year of €7 billion in state guarantees to its sales financing arm, which are keeping the French firm afloat.

The company that beat Ford by 22 years to make the first series-manufactured car back in 1891, survived two world wars and become a champion of French industry is struggling to contain losses that burnt €3 billion of cash in 2012.

Dongfeng is the latest Chinese carmaker to either fully or partially acquire foreign rivals after Zhejiang Geely Holding bought Sweden’s Volvo Car in 2010 and SAIC Group’s purchase of S. Korea’s SSangyong.

Under the deal between Dongfeng and PSA, the Peugeot family’s 25 per cent stake and 38 per cent of voting rights would be diluted to parity with the government and Dongfeng, short of the one-third required to veto decisions.

Sources have said Peugeot plans to sell new stock to Dongfeng and the French state priced at €7.50, a 41 per cent discount on Monday’s €12.79 closing price, followed by a rights issue to existing shareholders.

Peugeot is among the worst casualties of Europe’s six-year market slump and is being kept alive by state guarantees that expire next year.

Sources have said Peugeot and Dongfeng will cooperate to expand into Southeast Asia, although Peugeot has limited market penetration in the region.

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