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Scandal-hit Mitsubishi Motors Granted Lifeline as Nissan set to Buy $2.2 Billion Controlling Stake

Scandal-hit Mitsubishi Motors Granted Lifeline as Nissan set to Buy $2.2 Billion Controlling Stake
Taking de facto control with a $2.2 billion bet that bails out its smaller, scandal-hit rival, Nissan Motor Co has agreed to buy a 34 percent stake in Mitsubishi Motors Corp.
The deal is a lifeline for Mitsubishi Motors as it has had $3 billion wiped off its market value after confessing to manipulating fuel economy data and is mired in its third scandal in two decades.
But the deal should also provide a boost to Nissan. In countries like Thailand and the Philippines, where Mitsubishi's models are popular, Japan's second-largest car maker has struggled to make inroads into Southeast Asia.
With a partnership dating back to 2011 that does not currently involve any cross-shareholding, Mitsubishi and Nissan already cooperate on development and manufacturing.
Resulting in a raising of 237.4 billion yen ($2.18 billion), Mitsubishi Motors will issue new shares to Nissan at a 5.3 percent discount to Wednesday's close under the deal. Under Japanese shareholding rules, Nissan would have enough shares to control the group with just over a third of the shares.
The two carmakers can now realize "billions" in synergies by coordinating purchasing, plant utilization and cooperating in growth markets and the two would now share and jointly develop technology, Nissan Chief Executive Carlos Ghosn said.
"We are determined to preserve and nurture the Mitsubishi Motors brand. We will help this company address the challenges it faces, particularly in restoring consumer trust in its fuel economy performance," Ghosn said, addressing a joint press conference in Yokohama, south of Tokyo.
Industry analysts and bankers forecast a significant reshuffle at the top of the Mitsubishi board after Ghosn said that he believed that a third of Mitsubishi Motors' board would be nominated by Nissan and would probably be led by a Nissan executive.
The fuel economy of at least four of its models - mini cars sold in Japan, including two sold under Nissan's badge was overstated, admitted Mitsubishi Motors last month. As investors fretted over potential compensation costs, the brand of the company was bruised and it has already lost market share and dragged its shares down over 40 percent.
The size and scope of the fuel economy troubles had accelerated discussion with Nissan, said Mitsubishi Motors' Chief Executive Osamu Masuko, who has inturn “reassured” Ghosn about the size of the troubles.
One key reason for the deal was improving performance in kei cars, a Japanese category of small cars, Ghosn said. In Japan's small car market, where Nissan is dwarfed by Suzuki and Toyota's Daihatsu, it will gain a leg up. Mitsubishi is more readily recognized in the fast-growing Asian economies and Nissan would also get a lift tin such markets. In the year to the end of March, just 6.5 percent of Nissan's global retail sales was accounted for by Asia excluding China.
"The biggest benefit to Nissan would be Mitsubishi's presence in Southeast Asia," said Koji Endo, autos analyst at Advanced Research Japan.
However ensuring a turnaround at Mitsubishi, without full control is a more tougher ask for Nissan.
"Taking a one-third stake feels a bit like a half-measure. For investors, it would be cleaner if they made Mitsubishi Motors a fully owned subsidiary, as Toyota did with Daihatsu, and then took firm control of righting its governance," said Kiyoshi Yamanaka at T&D Asset Management.

Christopher J. Mitchell

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