Nissan Motors (TYO:7201) have announced the completion of a deal to acquire 34 percent stake in Mitsubishi. The deal is worth 237 billion yen or $2.29 billion, which makes Nissan the single-biggest shareholder of Mitsubishi (TYO:7211). Under the shareholding rules of Japan, Nissan will now have total control. It was revealed that the Chief Executive of the smaller automobile maker is going to be retained, though.
Shareholders are yet to approve this deal.
Both the businesses are based out of Japan. While Nissan’s headquarters are at Yokohama, their smaller Japanese rival is located at Minato in Tokyo. Nissan is currently the country’s number two automaker behind Toyota Motors.
Business Deal to Help Both Nissan and Mitsubishi
The deal is good for Mitsubishi as the business has been suffering for some time. Earlier this year, the company admitted that they have overstated mileage on many of their vehicles. The company also admitted to falsifying fuel economy test information so that the emission test levels look favorable. That became a big scandal.
It is a gain for Nissan too, as the business will now be able to gain from the strong presence of Mitsubishi Motors in several developing countries in Asia. The market share of Nissan too has been lagging for some time.
With this deal, Mitsubishi will now be able to be a member of the Nissan and Renault of France alliance. The combined annual car sales are likely to touch 10 million, making the group one of the top three car makers by sales volume. It will surely help them leverage scales to bring down operating costs.
Areas such as plant utilization and purchasing are likely to gain as well. Both Nissan and Mitsubishi will jointly develop plug-in hybrid vehicles and automated driving technologies.
The Turnaround Plan
Nissan Motors (TYO:7201) will be sending many of their top executives to improve many of the management systems of Mitsubishi. It might follow the same path as what happened to Nissan when Renault acquired a controlling stake in the business in 1999. Nissan was suffering at the time. Many of their plants were closed down, and thousands of workers were told to go.
Another top priority for Nissan will be help Mitsubishi regain the trust of consumers.
Carlos Ghosn, CEO and Chairman of Nissan said, “I will be responsible for the governance and making sure that there is a good mid-term plan and there is transparency into the company”.