Premier Automobiles Ltd (PAL) may agree to Peugeot infusing fresh equity into PAL-Peugeot in return for Peugeot releasing it from the non-compete agreement that has now become the bone of contention between the two companies.
Top sources in both the companies said talks are currently underway and both parties may be willing to cede ground to reach an amicable settlement. A final decision is expected by the end of this week.
PAL is expected to drop its demand for Peugeot to buy its 32 per cent stake in PAL-Peugeot. In return, Peugeot will give its go-ahead for the companys 49:51 joint venture with Fiat Spa of Italy.
Top PAL sources said they may agree to having minority control in the venture once Peugeot brings in fresh money. This is the only way the issue can be resolved, they explained.
Peugeot had filed a petition in the Bombay High Court this month against PALs proposed joint venture on the grounds that it violated clause 15.3 of the agreement PAL signed with it three years back when PAL-Peugeot was formed.
The clause stipulates that both parties will not enter into any alliance, tie-up or venture with a competitor in the same products like PAL-Peugeot. After the venture with Fiat was announced, Peugeot petitioned the court saying the agreement violates the clause and therefore should not be allowed.
The out-of-court settlement, to be hammered out by both parties, is expected to solve the problem. Peugeots main grouse was that PAL was not willing to infuse fresh equity into PAL-Peugeot to save the venture. It was willing to give majority control to Peugeot, but only through the purchase of its 32 per cent holding.
Peugeot felt that it would not solve the problem, as the issue of recapitalisation would not be addressed. PAL-Peugeot has run up accumulated losses that has wiped out half of its networth of over Rs 260 crore. It can be revived only through fresh equity infusion.
PAL, on the other hand, wanted to sell its holding to Peugeot as it would provide them cash to be used in the venture with Fiat.
The stalemate is likely to be broken this week with both parties ceding ground. Once the issue is settled, PAL can proceed with its venture with Fiat, while Peugeot brings in fresh money to save PAL-Peugeot.
Pal had proposed a new venture with Fiat which will take over the companys Kurla plant in Mumbai and manufacture the Fiat Uno and Premier Padmini. Along with the assets all the liabilities of the company will also be transferred to the venture where Fiat will hold 51 per cent.
PAL will continue to exist, however, and market the Premier Padminis produced by the new venture. It will also control the auto component business both of itself and of Premier Auto Electric, another company promoted by the Doshi family.
The new venture with Fiat will be called Pal Auto Ltd.
Peugeots main grouse was that Premier Automobiles was not willing to infuse fresh equity into PAL-Peugeot to save the venture. Premier was willing to give majority control to Peugeot, but only through the purchase of its 32 per cent holding
