(Adds background, analyst comment.)
By William Horobin
Of DOW JONES NEWSWIRES
PARIS -(Dow Jones)- Car parts maker Faurecia SA (EO.FR) Monday said it's buying US EMCON Technologies in an all-share deal, a move which will dilute the holding of French car maker PSA Peugeot Citroen (UG.FR) in Faurecia.
Faurecia will buy the Troy, Michigan-based emission control technologies group for 20.9 million new Faurecia shares, cutting Peugeot's Faurecia stake to 57.4% from 70.85%.
Investors welcomed the move, sending Faurecia shares up EUR0.41, or 3.1% to EUR13.62 at 0905 GMT. At that price, the deal is valued at EUR284.7 million. Peugeot shares also rose, up EUR0.75, or 3.4%, to EUR23.
"We welcome this new and important step of the development of Faurecia," Peugeot Chairman Philippe Varin said.
"Faurecia is now ideally placed in the leading pack of worldwide equipment suppliers. PSA Peugeot Citroen, as reference shareholder of Faurecia, will continue to support its development strategy," he added.
One Equity Partners, an investment fund of JPMorgan Chase & Co. (JPM), and current shareholder of EMCON Technologies, will hold a 19% stake and be represented with two seats at Faurecia's Board of Directors as well as one seat on the Board's Strategic Committee.
Faurecia said it become the world leader in emissions control technologies, in which it expects strong growth in the coming years.
For passenger vehicles, Faurecia expects the market to grow 7% a year, reaching EUR65 billion in 2020 from EUR29 billion in 2008. The commercial vehicles market is also expected to grow 7% a year to reach EUR16 billion in 2020, the company said.
EMCON Technologies, originally called Arvin Industries, posted 2008 sales of EUR2.4 billion and employs 6,000 people in 19 countries.
Faurecia said the deal will have no cash impact and no significant effect on its debt. It expects EUR60 million of synergies, or 2.5% of combined 2008 sales and Faurecia aims for the deal to be accretive on the net income per share from fiscal 2011.
Natixis said in a note to investors that such a deal had been expected since July, when Faurecia Chief Executive Yann Delabriere said the group would be looking for opportunities that might arise in the consolidation of the industry.
Natixis rates Faurecia stock at add.
Peugeot's Varin told journalists recently that there was "no magic number" for the parent company's stake in Faurecia that has been kept steady for many years, and hinted that Peugeot-Citroen was prepared to reduce it if it were in Faurecia's interest to do so.
Industry observers saw that as a sign of a change in management style and strategy at Peugeot, Europe's second-largest car maker by volume, following Varin's appointment at the beginning of June.
Last month, Faurecia raised its earnings guidance for the second half of this year, citing cost cutting and a smaller decline in sales than had initially been forecast.
It said it is targeting positive operating income, together with global cash flow close to break-even, for the second half this year. Previously, Faurecia was targeting operating income close to breakeven in the second half of the year, excluding restructuring costs, together with balanced cash flow.
(David Pearson contributed to this article)
Company Web site: www.faurecia.com
-By William Horobin, Dow Jones Newswires; +33 1 4017 1740; william.horobin@dowjones.com