Peugeot sells shares at 42% discount

Stock in PSA Peugeot Citreon (UG: PA), the second largest European automaker, fell as much as 6% as the company announced plans to raise 1 billion euro, or $1.23 billion, through shares issued at a 42% discount to Monday's average price.

Shareholders will be able to buy 16 shares for every 32 that they own between March 8 and March 21. The shares will cost 8.27 euro each, after the stock closed at 14.21 euro yesterday.

Peugeot and General Motors (NYSE: GM) announced an alliance Thursday where GM will become a 7% owner of the France-based auto maker, the largest non-family holder. Yesterday GM said it agreed to pay about 320 million euros to acquire its stake. The two companies will manufacture at least four vehicles within the next four years, or have vehicles planed for production within 18 months of the deadline.

GM and Peugeot will own slightly more than 30% of the shares, with the Peugeot family owning 25% of the capital and maintaining 38% of the voting rights.

Peugeot will go without a dividend this year and will allocate the money to projects. Last year the company reported an operating loss of 92 million euros on auto activities.

Only 74% of Peugeot's European capacity was used in 2011, and 62% is expected to be used in 2012. Neither manufacturer has announced plans to close plants or cut jobs as a result of the agreement.

General Motors, which is 32% government-owned, reported $750 million in losses in European cars in 2011, half what it lost in 2010. Automotive executives predict further declines in sales as European consumers wait for clarity on the regions debt crisis.