MUMBAI (Reuters) - India's largest utility vehicle maker, Mahindra & Mahindra Ltd, is in exclusive talks to buy the world's oldest maker of motorised two-wheelers from France's PSA Peugeot Citroen.
Mahindra has made a binding offer for a 51 percent stake in loss-making Peugeot Scooters and would subscribe to a 15 million euro ($18.9 million) capital increase to finance projects, the companies said in separate statements on Tuesday.
"In a European market that has been in steep decline for several years, the partnership with M&M would enable Peugeot Scooters to diversify its business base and speed its international expansion," Peugeot Scooters said.
Number two in Europe behind Italy's Piaggio, Peugeot Scooters has been hit by a sales slump caused by the economic crisis, helmets becoming mandatory in the key Italian market from 2000 and a boom in mobile phones that has eaten into the budgets of young people.
Since 2007, the market has shrunk by 45 percent, falling 13 percent in 2013, according to a Peugeot Scooters spokesman. The company produced 79,000 scooters last year.
Its French plant in Mandeure employs 500 people and produces about 25 percent of the firm's scooters, mainly high-end models, while its Chinese plant in Jinan - in a joint venture with Qinji
employs 300 staff and produces 65 percent of Peugeot Scooters' volume. The remainder is produced in Taiwan.
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In Europe, consumers buy 500,000 scooters per year - compared with 13 million in China - but competition is intense, with more than 100 Asian brands competing for market share.
Peugeot has been manufacturing motorbikes and scooters since 1898. It peaked in the 1970s with the Peugeot 103 moped, of which it sold a record 550,617 in 1974 alone. Peugeot Scooters has been losing money for about 10 years.
($1 dollar = 0.7925 euro)
(Reporting by Sumeet Chatterjee and Gilles Guillaume; Writing by Geert De Clercq; Editing by James Regan)