Long term alliance makes Nissan-Renault one of the biggest automakers in the world

Nissan and Mitsubishi, two of the stalwarts of the Japanese automotive scene, have agreed to an industry-shaking partnership that will make Nissan the largest shareholder of Mitsubishi Motor Corp. (MMC). The two parties have signed a Basic Agreement, forming a long-term strategic alliance that extends an already existing partnership that has existed for the past five years.

The scope of the partnership between Nissan and Mitsubishi is far-reaching, especially for the latter, which is still recovering from its admission that it manipulated data to inflate mileage results for some of its cars. As part of the partnerhips, Nissan will receive a 34-percent equity stake in MMC pending an MMC share issue. That’s the equivalent of 506.6 million newly issued MMC shares priced at 468.52 yen per share. All told, the equity stake is valued at 237 billion yen, or about $2.2 billion based on current exchange rates. In addition, MMC will propose nominees from Nissan to join the company’s board of directors in proportion to the latter’s voting rights, including a Nissan nominee to become the Chairman of the Board of MMC.

Outside the boardroom, the alliance between Nissan and Mitsubishi will include cooperations in a number of industry-related fields, including vehicle development, technology-sharing, and joint plant utilization, among other things. Nissan, in particular, will be sending engineers to Mitsubishi’s vehicle-development team to help sort out the mess the department has created in the publishing of erroneous fuel-economy data that has led to Mitsubishi receiving a Volkswagen-sized black eye in the industry.

The transaction has yet to be finalized pending the signing of a definitive Alliance Agreement, the signing of a shareholders agreement with incumbent Mitsubishi Group shareholders, and regulatory approvals. All transactions are expected to be completed by the end of 2016.

Continue after the jump to read the full story.

Why it matters

Nissan, Mitsubishi Agree On Strategic Partnership
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This is shaping up to be one of the biggest automotive stories of the year and once it’s finalized, it would represent a massive shift in power and influence in the industry. On a macro level, having Mitsubishi in the fold would give the Renault-Nissan alliance the sales volume to compete against the biggest automakers in the world. The combined sales numbers from the three brands reached 9.6 million vehicles worldwide in 2015. That’s close to the 10 million cars that automakers like Toyota, Volkswagen, and General Motors annually sell by themselves.

On the surface, the deal obviously benefits Mitsubishi more than it does Nissan. Even without the massive cheating scandal, Mitsubishi’s sales have already been declining in the wake of stiffer competition from automakers from all over the world. The scandal obviously hasn’t helped and without Nissan stepping in, who knows what would’ve happened to MMC. You also only need to look at the share prices of both companies once news of a possible deal broke. Nissan’s shares fell by 1.4 percent while Mitsubishi saw its own shares shoot up by 16 percent.

That’s not to say that Nissan isn’t gaining anything from it. If anything, Nissan agreeing to this partnership helps it cut development costs and allows it to invest in technologies with the help of scientists and engineers from Mitsubishi. Plus, if the partnership results in Mitsubishi once again becoming a bigger player in the business, Nissan, as the controlling shareholder, stands to benefit the most.

That said, Nissan is still doing its due diligence to ensure that it’s not jumping into a sinking ship. According to the Wall Street Journal, Nissan has hired a team of investigators to dive into Mitsubishi’s books to make sure that it doesn’t find anything that could compromise the deal. That’s a smart business move knowing how much trouble Mitsubishi has found itself in after pulling a Volkswagen on the industry.

For the sake of all parties concerned, I’d like to see this partnership push through because having another major player to compete against the likes of Toyota, Volkswagen, and GM. It could force those companies to step up their respective games.

Press Release

Nissan Motor Co., Ltd., ("Nissan”), and Mitsubishi Motors Corporation, ("MMC”) announced that they have signed a Basic Agreement today to form a far-reaching strategic alliance between the two Japanese automakers.

Following an MMC share issue, Nissan will take a 34 percent equity stake in MMC for 237 billion yen.

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

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

Carlos Ghosn, chief executive 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, 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.”

Under the terms of the transaction, Nissan will purchase 506.6 million newly issued MMC shares at a price of 468.52 yen 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 MMC on closing.

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.

The transaction is subject to the signing of a definitive Alliance Agreement, expected by the end of May 2016, the signing of a shareholders agreement with the current Mitsubishi Group shareholders of MMC and regulatory approvals. It is expected to close by the end of the year.

The decision by Nissan to acquire a strategic stake in MMC 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, 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.

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