UPDATE 2-Russian Railways in Peugeot logistics unit talks

Thu Sep 20, 2012 6:38pm IST

Stocks

   

* Peugeot to sell 75 pct stake for 800 mln euros

* Gefco to pay Peugeot 100 mln euros special dividend

* PSA shares rise 2.3 pct, outperform sector index

* Russian Railways to use bank loan to finance deal

* Russia bets on growth in overland goods transit (Adds background, Russian Railways comment, shares)

By James Regan and Gleb Stolyarov

PARIS/MOSCOW, Sept 20 (Reuters) - Russia's state railway monopoly is in talks to buy Gefco, the logistics business that loss-making French car maker PSA Peugeot Citroen wants to sell, as it bets on growing demand for transporting goods overland between Europe and Asia.

Russian Railways, or RZhD, would pay 800 million euros ($1 billion) for a 75 percent stake in Gefco, which would first pay a special dividend of 100 million euros to Peugeot, helping its current owner cut debt and contain mounting losses.

Russia, the world's ninth-largest economy, is seeking to diversify away from oil and gas and under President Vladimir Putin has made developing its manufacturing base, particularly the Russian car industry, an economic policy priority.

Gefco would bring Russian Railways core clients that in addition to Peugeot include General Motors, the largest foreign car maker in Russia. Gefco in July became GM's exclusive logistics partner in Russia and Europe in a deal that will see it distribute around 1.2 million vehicles a year.

"The acquisition of Gefco will help activate the flow of goods transit across the trans-continental route between Europe and Asia," said Russian Railways, which operates the Trans-Siberian railway to Russia's Pacific seaboard.

While only 1 percent of goods transit between Europe and Asia currently moves by land across Russia, the country's industrial leaders hope that share will grow fivefold as it pivots away from its traditional reliance on the European export market towards the faster-growing Pacific Rim.

Russian Railways operates the world's second-largest rail network, employs 1 million workers and has annual sales of $40 billion.

The expansion in logistics echoes moves by rivals such as Deutsche Bahn, Europe's biggest rail operator, which has set itself a goal of becoming the world's leading company in logistics, an area where it sees strong growth.

Gefco, which had revenue of 3.78 billion euros and operating profit of 223 million last year, has 137 depots linked by 400 international routes and ships 28 million tonnes of freight and 4 million cars each year.

It has 10,300 staff in 32 countries, including around 340 in Russia. Central Asia, Central and Eastern Europe account for more than 1,600 workers.

Peugeot is selling the stake in its most profitable unit as it seeks to lower debt and shore up its finances. Gefco is one of only a few profitable and saleable assets it has.

According to a presentation to the Russian Railways board that was seen by Reuters in August, a preliminary value of up to 975 million euros had been put on the deal, excluding potential synergies, based on a $1.3 billion valuation for 100 percent of Gefco.

Pavel Ilyichev, deputy head of Russian Railways' corporate finance department, told Reuters that financing for the deal would come from a bank loan, which was likely to be followed up by debt refinancing from the capital markets in order to take on debt with a longer maturity and better terms.

"We will finance this project on a commercial basis," Ilyichev said. "It is profitable and one of the most effective projects in our investment programme."

Cartel office approval would be required in multiple countries, and Russian Railways expects the process to take 10-12 weeks.

Shares in Peugeot were little changed at 6.861 euros by 1232 GMT, the second-best performers on a 1.8 percent weaker European autos and car parts index. The stock is down 35 percent this year after losing 57 percent in 2011.

Peugeot has announced thousands of job cuts, as well as the closure of a plant near Paris, to help safeguard its future as it struggles with a tough European car market and too much production capacity.

GLOBAL EXPANSION

Gefco plans to expand further in China, India and Latin America, as well as accelerating its growth in Eastern and Central Europe, particularly in Russia, under its new owners, Peugeot said.

Gefco would remain headquartered in France, said Peugeot, whose restructuring plans have come under scrutiny from the French government as unemployment in the country has reached 13-year highs.

Russian Railways confirmed that it would retain Gefco's management team, as well as all existing operations that provide services to the PSA Peugeot Citroen group.

Peugeot and Gefco plan to consult their works councils on the offer, Peugeot added.

The Russian government has pencilled in the privatisation of a one-quarter stake in Russian Railways by the end of 2013, but RZhD chief Vladimir Yakunin - a long-time friend of President Vladimir Putin - is pushing back a sell-off. ($1 = 0.7658 euros) (Additional reporting by Douglas Busvine in Moscow; Editing by Mark Potter and Hans-Juergen Peters)

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