GM to Take Up to 7% Stake in Peugeot, Partnership Mulled

General Motors Co. will take up to a 7 percent stake in France's PSA Peugeot Citroen as the two automakers discuss an engineering and development partnership to boost both companies' struggling European operations.

The news sent shares of both automakers higher a day after the deal was announced, with Peugeot surging as much as nearly 10 percent in Paris afternoon trade.

GM is expected to invest about $360 million in Peugeot, which is not expected to make a reciprocal investment in GM. Its shares rose 14 cents to $26.60 in premarket trading in New York. The deal was announced late Monday.

GM's European operations lost $747 million last year, while Peugeot lost $2.2 billion in 2011.

Peugeot makes gasoline engines and hybrid vehicle parts with Germany's BMW and diesel powertrains with U.S. car maker Ford, Reuters said.

Peugeot's market capitalization is $4.8 billion, while GM's market capitalization is $41.4 billion.

Analysts were skeptical of the contemplated tie-up.

We struggle to see the benefits of an Opel/PSA alliance given that both companies face the same problem of falling prices and falling volumes, Credit Suisse analyst Eric Hauser told MarketWatch. Opel is GM's loss-making European unit.

The unknown factor here is what a dilution of the [Peugeot] family's 30.3 percent capital and 46.3 percent voting stake signifies, Hauser said. Is it a reflection of the view that the business cannot continue as a going concern in the current form...?