French auto manufacturer PSA Peugeot Citroën SA will sell shares at a 42 percent discount as part of a €1 billion ($1.32 billion) capital increase the company is seeking, as it confirms an alliance with U.S. automaker General Motors Co, reports say.

The shares will be sold at a deeply discounted price of €8.27 as compared to Peugeot's closing price yesterday of €14.21.

Peugeot is also pursuing €1 billion cost reduction measures to augment the capital raised in the offering and will be seeking to dispose of approximately €1.5 billion in assets including Rental car CITER, real estate holdings, and opening of the capital of GEFCO, the logistics company owned by Peugeot.

GM and the Peugeot family have committed to purchasing 31 percent of the shares, sources say.

As part of the alliance between the two companies, GM is set to take a 7 percent stake in the company worth €320 million ($423 million), which would make it the second largest shareholder after the Peugeot family itself.

This partnership brings tremendous opportunity for our two companies, said Dan Akerson, GM chairman and CEO.  GM hopes that the partnership will improve its prospects in Europe where it has had twelve years of losses.

Deal Has Two Goals

The alliance between the companies will have two main focuses, platform and component sharing and the creation of a global purchasing joint venture.  The purchasing JV is expected to have a combined purchasing volume of approximately $125 billion.

The two companies hope to achieve cost savings of as much as $2 billion annually within the next five years, although immediate benefits in the next two years will be limited.  Greater cost savings will coincide with the launch of new vehicle programs, presumably using shared platforms and components, after the first two years of the agreement.  The first car with a platform shared between the two companies is expected to launch by 2016.

In 2011, GM was the world's largest can manufacturer in terms of sales volume with almost 9 million vehicles sold; Peugeot Citroën was the 8th with almost 4 million.