Nissan to take over Mitsubishi

Just weeks after the Mitsubishi fuel economy scandal was exposed by its engineers, Nissan has thrown a $3 billion lifeline to the smaller embattled Japanese car-maker.

In fact, Nissan Motor Co (NMC) will control Mitsubishi Motors Corp (MMC) under a "far-reaching strategic alliance" to include purchasing, common vehicle platforms, technology-sharing, joint manufacturing and growth markets, said the two companies today.

News of the Nissan-Mitsubishi tie-up first surfaced this morning, and was confirmed this evening after the CEOs of both companies met with their respective boards then signed the "basic agreement" in Tokyo.

The alliance agreement, to be formalised by May 25, will see Nissan become Mitsubishi Motors' largest shareholder by taking a controlling 34 per cent equity stake for 237 billion yen ($A2.95b).

Under the terms of the transaction, Japan's second-largest car-maker will purchase 506.6 million newly-issued MMC shares for 468.52 yen per share -- the volume weighted average price between April 21 and May 11.

That covers the three weeks since the public outing of Mitsubishi's systematic fuel consumption cheating -- which dates back 25 years to 1991 -- during which time MMC's stock price has plummeted 43 per cent.

The deal is subject to Japanese regulatory approvals and agreement by MMC shareholders within the Mitsubishi Group who currently have the largest stake holding in the company.

They include Mitsubishi Heavy Industries, Mitsubishi Corp and Bank of Tokyo-Mitsubishi UFJ, which together own 34 per cent of MMC and bailed out the company previously in 2004.

"MMC and Nissan expect Mitsubishi Heavy Industries, Mitsubishi Corporation and The Bank of Tokyo-Mitsubishi UFJ to maintain a significant collective ownership stake in Mitsubishi Motors, and to support the strategic alliance," said the companies today.

Expected to close by the end of the year, the deal would give Nissan a bigger stake in Mitsubishi than its 15 per cent holding in Renault, its alliance partner for 17 years. In turn Renault holds a 43.4 per cent stake in Nissan.

"On closing, MMC will propose Nissan nominees as board directors in proportion to Nissan’s voting rights, including a Nissan nominee to become Chairman of the Board," said the joint statement.

While Nissan also has stakes in or signed partnerships with Daimler and AvtoVaz, Mitsubishi has supplied Nissan with mini 'kei' cars in Japan for the past five years.

It was this partnership that led to the exposure of Mitsubishi's falsifying of vehicle fuel consumption tests, which so far embroils 13 Japanese domestic models including the RVR (sold as the ASX in Australia).

According to Automotive News, the cheating came to light after Nissan discovered irregularities in fuel economy figures when engineers from both companies sat down to develop the next-generation of the mini-cars.

Mitsubishi and Nissan mini-car sales, which comprise 40 per cent of the Japanese market, have been halted until Mitsubishi determines compensation.

It's not yet clear whether Mitsubishi vehicles outside Japan are affected by the rigged emissions testing procedures, however, some analysts say the bill to fix and compensation kei-car owners alone will run into billions.

While both companies will now be liable for those costs, both stand to gain from the partnership, even if both brands are known more in Australia for their SUV and LCV models.

Apart from "target shared cost savings" from joint vehicle technologies and manufacturing, Nissan will contribute corporate governance and management expertise to help Mitsubishi restore public trust in its brand.

Along with a big cash injection, Mitsubishi could also gain a raft of desperately needed products, especially in the US and Australia, where there's no sign of a replacement for the Lancer -- the oldest model in the nation's largest segment.

While Nissan stands to gain by supplying vehicles to Mitsubishi and accessing its more successful sales network in southeast Asia, the two companies could also reduce costs and improve economies of scale by working together on pick-ups, electric cars and autonomous vehicles.

“This is a breakthrough transaction and a win-win for both Nissan and Mitsubishi Motors," said Nissan chief executive and president Carlos Ghosn.

"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, 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 of the board and chief executive of MMC, 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.”

MMC has a global workforce of 30,000 and last fiscal year produced 1.048 million vehicles. Nissan has 247,500 employees and made 5.3 million vehicles in 2014. Combined with Renault, the French-Japanese alliance would be the world's fourth largest car-maker behind Toyota, Volkswagen and GM.