Nissan to buy 34% stake in Mitsubishi

YOKOHAMA, Japan (May 12, 2016) — Nissan Motor Co. Ltd. is planning to buy a 34-percent ownership stake in Mitsubishi Motors Corp. for $2.2 billion.

Nissan CEO Carlos Ghosn said the proposed alliance would cover purchasing, common platforms, joint manufacturing, technology development and target shared cost savings. Nissan would also contribute corporate governance and management expertise to help Mitsubishi restore public trust in its brand.

The companies said they plan to sign an agreement by May 25 in which Nissan can name four directors to Mitsubishi Motors' board. A Nissan-appointed director can also be named chairman of Mitsubishi Motors, according to a filing today. The deal will be invalid if not completed within a year.

Nissan is riding to Mitsubishi's rescue after it called out Mitsubishi for cheating on emissions tests, plunging its close partner into crisis and uncertainty about its very viability.

The purchase is poised to vault Nissan past Mitsubishi group companies to become Mitsubishi Motors' single-largest shareholder.

“It represents a win-win,” Mr. Ghosn said. “We believe in the potential of Mitsubishi Motors.”

Ghosn promise

Mr. Ghosn said Nissan, as Mitsubishi's biggest shareholder, would “preserve and nourish” the Mitsubishi brand.

The Nissan CEO added that the agreement came together quickly because Mitsubishi was open and honest about the scale of its problems. He noted that Nissan would complete the deal only after it has conducted full due-diligence of the investment.

Mitsubishi CEO Osamu Masuko said his company needed the help and that a deeper partnership with Nissan was an “important pathway” to re-establishing trust in his company's tarnished brand.

“We had to do something quite daring,” Mr. Masuko said. “It is not an easy task to restore trust.”

The overture tightens bonds between two companies that could have just as easily split ways in acrimony over a scandal that has hurt both in their home market.

But Mitsubishi's faked fuel economy crisis, which has since torpedoed crucial Japanese minicar sales at both companies, also presents a potential win-win opportunity for both.

For Mitsubishi, it provides a stable source of cash and corporate management from Nissan that may help restore its tarnished reputation. The struggling car maker may even get a badly needed influx of new product for the U.S. to help shore up a fledgling recovery there.

Nissan gains

For Nissan, tapping Mitsubishi's solid sales network in Southeast Asia could help Nissan in a market where it has failed to gain traction. Additional supply of vehicles to Mitsubishi would also help Nissan achieve higher volume in an era when economies of scale is the new mantra.

“Why spend twice? One development can be done and shared,” Mr. Ghosn said, stressing both companies could share work in areas such as pickups, electric cars and autonomous vehicles.

Nissan must also preserve its Japanese minicar partnership with Mitsubishi, no matter how strained, because the segment accounts for about 40 percent of local sales. Nissan abandoned its own minicar business and threw its lot into a joint minicar venture with Mitsubishi in 2010.

And more importantly, it provides opportunities to pool resources on electrified drivetrains — a technology that both car companies have positioned as central to their growth strategy.

“There's an easy way to spin this positively,” said Kurt Sanger, lead auto analyst at Deutsche Securities Japan. “At the end, this is about much more than just minicars in Japan.”

Renault experience

Mr. Ghosn said Nissan would channel its successful experience working with French partner Renault S.A. into its approach with Mitsubishi. The key would be taking small steps, planning well together and ensuring the independent identities of both companies.

“We have the track record to make it work,” he said.

Mr. Masuko said the alliance was accelerated by the recent fuel efficiency scandal, but that both companies have been gravitating toward each other in recent years through joint projects.

“It is very difficult to go alone,” he said. “We have to have a trusted partner.”

The companies' have built trust over the years. Aside from cooperating in mini vehicles, Nissan has in the past also provided Mitsubishi with luxury sedans based on its Infiniti nameplates. Mitsubishi has also previously manufactured a pickup in Thailand for Nissan.

“We are not going to change Mitsubishi. Mitsubishi is going to change by itself,” Mr. Ghosn said. “We are going to support Mitsubishi to do that.”

Discount deal

Because of Mitsubishi's tumbling stock price, Nissan may have been able to grab a sizeable shareholding at a discount. The price could have easily been double before Mitsubishi was mired in scandal and had the appearance of a company on the rebound.

Mitsubishi Motors shares have fallen 43 percent since April 19.

The tie-up comes the fuel economy scandal around Mitsubishi widens. Mitsubishi, which admitted last month to cheating on fuel-economy ratings for four minicars sold in Japan, said May 12 that nine more models including an SUV may not have been tested properly as the scandal spreads beyond the initial batch of minicars.

Two of those original minicars were sold under the Nissan brand.

The problem came to light after Nissan discovered irregularities in fuel economy figures when engineers from the companies sat down to develop the next-generation of the minicars.

Mitsubishi has said vehicles sold in the U.S. and other markets outside Japan were not subjected to the rigged emissions testing procedures used in Japan.

Scandal memories

Minicar sales at both companies have plummeted in the wake of the scandal, with Mitsubishi stopping production of the cars at the joint venture until a fix and compensation is determined.

Mitsubishi has said it won't seek help from the Mitsubishi Group companies, such as Mitsubishi Heavy Industries Ltd. and Mitsubishi Corp., which hold stakes in the auto maker and traditionally have served as go-to bailout partners in the past.

Under Japanese law, a one-third stake holding is enough to give a shareholder veto power over board decisions. Nissan's 34 percent stake would suffice.

Nissan is Japan's second-largest auto maker by sales. The deal would give Nissan a bigger stake in Mitsubishi than its 15-percent holding in alliance partner Renault. The French auto maker holds a 43.4-percent stake in Nissan.

Bloomberg News and Reuters contributed to this report, which appeared on the website of Automotive News, a Detroit-based sister publication of Tire Business.