PSA Peugeot Citroen plans to build new cars and expand in Asia under a French-backed rescue deal agreed with China's Dongfeng, the company has said.
It announced the deal as it posted a €2.32 billion loss that underscores the scale of the task ahead.
The Paris-based group announced a long-awaited €3 billion fundraising that will bring it new leadership, more time to turn itself around and an end to two centuries of family control.
Dongfeng Motor Group and the French state will each pay €800m for 14% of the carmaker to match the founding Peugeot family's reduced holding, Peugeot said, confirming earlier Reuters reports.
Peugeot shares jumped as much as 9% in Paris after it unveiled new goals for the partnership with Dongfeng and said it had slashed cash burn last year, beating an interim recovery goal.
But Peugeot said it still made a €2.32 billion net loss, and warned it may not stem the red ink until 2016, a year later than initially promised.
Peugeot has been one of the biggest casualties of a six-year slump in Europe's car market, with insiders saying it has been too slow for years to adapt to competitive threats and had missed opportunities to deepen partnerships with BMW, Toyota and Mitsubishi Motors.
The company's chief financial officer Jean-Baptiste de Chatillon said Peugeot would use its new capital to catch up in hybrid technology, low-cost cars and Mediterranean markets where it has been left behind by French rival Renault-Nissan.
"Everything is in place to give Peugeot a new lease of life as a major international carmaker," Chatillon said. "We have the products, the teams, the know-how and now we have a new balanced and stable ownership."
Incoming CEO Carlos Tavares said there was still "huge room for improvement" on costs.
"Our challenge is to be the best of the Europeans in terms of (our) manufacturing and distribution model, which frankly is not the case today," he told analysts and reporters.
While the loss at Peugeot's core auto division narrowed 30% to €1.04 billion last year, net debt rose by about the same figure to €4.15 billion despite drastic investment cuts.
Under their framework deal, Peugeot and Dongfeng pledged to expand their existing joint venture, adding new models to target 1.5 million annual vehicle sales in 2020, and generate €400m of savings for the French partner.
Dongfeng-Peugeot will also create a major new research and development centre in China and a sales venture to export their cars to other South East Asian markets, the companies said.
Peugeot will raise €1.05 billion in a share sale to Dongfeng and the French state at €7.50 - a 40% discount to the current market price. Both will subscribe to a rights issue backed by banks to raise another €1.95 billion, including €150-250m from the Peugeot family.
Current shareholders will also receive warrants allowing them to buy three new Peugeot shares at the same discounted price for every 10 held - raising up to €770m more.
The deal marks the end of an era, with Chairman Thierry Peugeot and CEO Philippe Varin both stepping down. Former Renault man Tavares, whose appointment was announced in December, took over the operational leadership today.
Dongfeng, France and the Peugeot family will each have two board seats, according to a summary of their shareholder agreement published by the Chinese carmaker.
The €2.32 billion net loss last year, which compares with a €5 billion loss hit by asset writedowns in 2012, was exacerbated by currency effects that also led to a 2.4% decline in group sales to €54.09 billion.
Peugeot said it had €6.6 billion in cash reserves as of December 31 and had renewed a €2.7 billion credit line with nine banks for up to five years.