Kez Casey | May 12, 2016

Speculation about a merger or acquisition between Nissan and Mitsubishi Motors reached fever-pitch earlier today, with speculation that Mitsubishi’s recent fuel economy misreporting scandal had rocked the company to its core.

That speculation came to an end with an announcement from Nissan which outlined a strategic alliance between the two companies.

Nissan and Mitsubishi Motors have signed a Basic Agreement to kick off the alliance between the two while terms for a far-reaching strategic alliance are worked out.

For its part, Nissan will purchase a 34 percent equity stake in Mitsubishi Motors for ¥237 billion (A$2.9 billion), making it the company’s largest shareholder in the process.

“This is a breakthrough transaction and a win-win for both Nissan and Mitsubishi Motors,” said Carlos Ghosn, CEO of Nissan.

“We will be the largest shareholder of MMC, respecting their brand, their history and boosting their growth prospects.”

Under the terms of the alliance, Nissan will purchase 506.6 million newly-issued shares in Mitsubishi Motors, with the transaction price based on Mitsubishi’s average trading price between the 21st of April and the 11th of May 2016.

While the full terms of the alliance are yet to be disclosed, the precedent set by Nissan and Renault’s alliance, which stretches back over 17 years would open up a range of platform, engine, and technology sharing opportunities.

In this instance however, Nissan’s stake in Mitsubishi would be larger than the 15 percent stake Nissan holds in Renault, while Renault controls 43 percent of Nissan. No changes to the existing Renault-Nissan alliance are expected.

Following the fuel consumption scandal concerning Japanese-market Kei cars, discovered by Nissan engineers and later admitted to by Mitsubishi, Mitsubishi’s share price had fallen by around 43 percent.

Mitsubishi’s already ageing model line-up, and falling sales figures in markets like the US and Europe, have weakened the Japanese company’s financial standing. The threat of over US$1 billion (A$1.4 billion) in estimated compensation payouts, though any figure is guesswork at this stage, potentially exposed the company to considerable risk and a further collapse in value.

Surprisingly, Mitsubishi Motors did not turn to sister companies Mitsubishi Heavy Industries, Mitsubishi Corporation, and Bank Of Tokyo-Mitsubishi for financial assistance. Those three companies already hold a combined 34 percent share in Mitsubishi Motors.

Nissan stands to gain access to Mitsubishi’s Kei car production capacity, with Mitsubishi already building compact city cars for Nissan in Japan, Mitsubishi’s South East Asian market success could also be an incentive to Nissan.

The growing Nissan alliance now includes ties with Renault, Mercedes-Benz’ parent company Daimler, and Russian automaker AvtoVAZ which builds Lada vehicles, as well as producing some Renault, Datsun and Nissan vehicles.

MORE: Nissan | Mitsubishi | Merger

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