Nissan Will Take a Controlling Stake in Mitsubishi
The Japanese auto industry is about to consolidate, and quickly. In a joint news conference, Nissan (and Renault) CEO Carlos Ghosn and Mitsubishi Motors CEO Osamu Masuko announced that Nissan will take a controlling stake in Mitsubishi. The ailing Japanese automaker has been reeling over the past few weeks since news broke of a fuel-economy scandal surrounding Mitsubishi-produced mini-cars sold in Japan as both Nissans and Mitsubishis. Since the scandal hit the headlines, Mitsubishi Motors’ stock has declined 43 percent.
Nissan stands to benefit greatly from this tie-up, which will likely become similar to the structure of its partnership with Renault, except for the time being, the shareholding will only be in one direction (Nissan owning a large share of Mitsubishi Motors). Nissan owns 15 percent of Renault, while Renault owns 43.4 percent of Nissan. For the fire-sale price of $2.2 billion, Nissan gets to amortize development costs with another automaker and gets more purchasing leverage from suppliers. It also gets Nissan a bigger foothold in Southeast Asia, where Mitsubishi has had some success. Too, the three-way combination of Renault-Nissan-Mitsubishi sold 9.6 million vehicles worldwide in 2015, nipping at the heels of Toyota, GM, and VW for the global lead.
For Mitsubishi, the benefits are also fairly obvious, not the least of which is allowing for Mitsubishi to survive as a going entity, which was in doubt prior to news of the Nissan takeover. Nissan has strength in North America, while Mitsubishi has struggled there. Nissan also brings Mitsubishi a better product-development process (in fact, Nissan will lend the smaller company some of its product-development engineers) and a global production network.
Ghosn said that he intends to keep the Mitsubishi brand around, and Mitsubishi Motors CEO Osamu Masuko will keep his job.
The last time Mitsubishi Motors had an existential crisis was in 2004, when the company admitted to suppressing reports of customer complaints for decades. At that time, Mitsubishi partner DaimlerChrysler refused a cash infusion, so the Mitsubishi group companies (a larger Japanese conglomerate that includes many other Mitsubishi businesses besides the automaker) stepped in with a cash infusion.
Under Japanese law, a company with a 34% stake – which is what Nissan will own – becomes the controlling shareholder and can veto management decisions. Nissan will appoint a number of Mitsubishi directors proportionate to its stake, including the chairman. Because Mitsubishi Motors will issue new shares to Nissan. Mitsubishi Motors’ current shareholders’ voting interest will be diluted. The company’s current controlling shareholders, Mitsubishi Heavy Industries<span class=”company-name-type”> Ltd.</span>, Mitsubishi<span class=”company-name-type”> Corp.</span> and Bank of Tokyo-Mitsubishi UFJ Ltd. will see their combined holding in Mitsubishi Motors fall to about 20% from 34% currently.
Curiously enough, it was Nissan who raised the red flag about Mitsubishi Motors’ fuel-economy shenanigans. Mitsubishi produces mini-vehicles (those with 660-cc engines, sold only in Japan) for Nissan. When Nissan engineers couldn’t duplicate the fuel-economy test results that their Mitsubishi counterparts claimed, the scandal came to light. Analysts estimate that the scandal will cost Mitsubishi close to $1 billion to compensate Japanese mini-vehicle owners for eco-car tax breaks and extra fuel costs.
Nissan and Mitsubishi Motors plan to close the deal by May 25 – that’s just two weeks away. Nissan is poring over Mitsubishi’s records in the meantime to ensure that no further dirty laundry comes to light.
