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Nissan Acquires 34% Stake in Mitsubishi Motors

By on May 13, 2016

Nissan Chief Executive Carlos Ghosn speaks to the media in the automaker's headquarters in Yokohama, Friday, May 13, 2016. Ghosn is confident the 237 billion yen ($2.2 billion) investment to take a controlling stake in scandal-embroiled Mitsubishi Motors will prove a bargain when sheer size is increasingly critical in the auto industry. (AP Photo/Yuri Kageyama)

Nissan Chief Executive Carlos Ghosn speaks to the media in the automaker’s headquarters in Yokohama, Friday, May 13, 2016. (AP Photo/Yuri Kageyama)

SAN JUAN – Nissan Motor Co. and Mitsubishi Motors Corp. announced that they have signed a basic agreement to form a strategic alliance between the two Japanese automakers.

Following a Mitsubishi share issue, Nissan will take a 34% equity stake in Mitsubishi for 237 billion yen ($21.7 billion).

The strategic alliance will extend an existing partnership between Nissan and Mitsubishi, under which the two companies have jointly collaborated for the past five years.

Nissan and Mitsubishi have agreed to cooperate in areas including purchasing, common vehicle platforms, technology-sharing, joint plant utilization and growth markets.

Carlos Ghosn, CEO and president of Nissan, said: “This is a breakthrough transaction and a win-win for both Nissan and Mitsubishi Motors. It creates a dynamic new force in the automotive industry that will cooperate intensively, and generate sizeable synergies. We will be the largest shareholder of MMC [Mitsubishi], respecting their brand, their history and boosting their growth prospects. We will support MMC as they address their challenges and welcome them as the newest member of our enlarged Alliance family.”

Osamu Masuko, chairman and CEO of Mitsubishi, said: “Through its long history of successful partnerships Nissan Motor has developed a deep knowledge of maximizing the benefits from alliance partnerships. This agreement will create long-term value needed for our two companies to progress towards the future. We will achieve long term value through deepening our strategic partnership including sharing resources such as development, as well as joint procurement.”

Under the terms of the transaction, Nissan will purchase 506.6 million newly issued Mitsubishi shares at a price of 468.52 yen ($4.30) per share. The price per share reflects the volume weighted average price over the period between April 21, 2016 and including May 11, 2016. Nissan will become the largest shareholder of Mitsubishi on closing.

Mitsubishi and Nissan expect Mitsubishi Heavy Industries, Mitsubishi Corp. and the Bank of Tokyo – Mitsubishi UFJ to maintain a significant collective ownership stake in Mitsubishi Motors, and to support the strategic alliance.

The transaction is subject to the signing of a definitive alliance agreement, expected by the end of May, the signing of a shareholders agreement with the current Mitsubishi Group shareholders of Mitsubishi and regulatory approvals. It is expected to close by the end of the year.

The decision by Nissan to acquire a strategic stake in Mitsubishi marks the latest expansion of its alliance model, built around a 17-year cross shareholding arrangement with Renault.

Nissan has also acquired stakes or signed partnerships with other automotive groups including Daimler, and AvtoVaz.

On closing, Mitsubishi will propose Nissan nominees as board directors in proportion to Nissan’s voting rights, including a Nissan nominee to become chairman.

Ghosn is confident the $2.2 billion investment in scandal-embroiled Mitsubishi Motors will prove a bargain when sheer size is critical in the auto industry.

Japanese transport ministry officials raided Mitsubishi’s Tokyo headquarters Friday, as part of an investigation into inflated fuel-economy data for several models.

Ghosn was careful to stress the acquisition won’t become final until he sees the outcome of the Japanese regulators’ investigation, such as the scale of the fraud, whether overseas markets are affected and what the penalties might be.

But scale is critical for developing expensive technology such as low-emissions vehicles and autonomous driving. So is the advantage of being in various markets to balance ups and downs in regional growth, he said.

“If you are small, you are going to be vulnerable,” Ghosn told reporters at Nissan Motor Co.’s Yokohama headquarters Friday, a day after he announced the agreement.

Ghosn acknowledged he grabbed at an opportunity as Mitsubishi shares nose-dived after the latest scandal surfaced.

Mitsubishi’s shares fell 43 percent between April 19 – the day before it announced the fuel economy scandal – and May 11. The stock cost 565 yen ($5.20) Friday, down 1.7 percent following a surge on the deal’s news.

Gaining Mitsubishi adds about 900,000 in annual vehicle sales to the Nissan-Renault alliance, which already is the fourth-largest automaker in the world with about 8.5 million in sales.

The deal vaults the alliance into competition for the top spot with the world’s three biggest automakers, Toyota Motor Corp., Volkswagen AG and General Motors Co.

The plus for Nissan is the added economies of scale, such as sharing auto parts, working together on sport-utility vehicles, and gaining markets in Southeast Asia, where the Mitsubishi brand is still strong, said Paul Newton, an analyst with IHS.

“The purchase will give them an effective controlling stake and is somewhat opportunistic, as $2.2 billion is not a huge sum for such a significant chunk of the company and could be seen as something of a bargain,” he said in an email.

The 34 percent stake is below the threshold for which Nissan would be liable for Mitsubishi’s debts under Japanese law, Newton said.

Mitsubishi could face massive expenses to compensate car owners for the overstated mileage and pay government fines. But Mitsubishi has already promised to compensate Nissan for lost sales as well as any penalties and costs from the scandal, Ghosn said.

Nissan found the faked mileage tests because of a discrepancy with its own tests on Mitsubishi-manufactured minicar models with tiny engines that had been sold under the Nissan brand.

Ghosn stressed that regaining consumer trust is the No. 1 challenge for Mitsubishi.

In the early 2000s, Mitsubishi disclosed a massive cover-up of defects such as failing brakes, faulty clutches and fuel tanks prone to falling off, dating back to the 1970s. Mitsubishi has said its mileage rigging dates back 25 years, and may involve all its models, including discontinued ones.

Ghosn engineered the revival at Nissan after being sent by Renault SA of France in 1999. Nissan was in deep debt and unprofitable then, but Mitsubishi has 450 billion yen ($4 billion) in cash and is managing an operating profit, Ghosn noted.

“The financial situation of Mitsubishi is not bad,” he said.

The Associated Press contributed to this report

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