France's PSA Peugeot Citroen could buy a large stake in Japan's Mitsubishi Motors Corp as part of plan to deepen ties to ride out the auto industry's worst ever slump and take a lead in electric vehicles.
Shares of Mitsubishi jumped as much as 22 percent on Thursday after the Nikkei business daily reported Peugeot Citroen, Europe's second-biggest carmaker, may take a 30-50 percent stake in Mitsubishi Motors for up to 300 billion yen ($3.4 billion).
The paper also said top management at the Mitsubishi group were ready to accept a majority acquisition of Mitsubishi Motors by family-owned Peugeot if conditions were right.
Both companies confirmed they were in talks to strengthen their existing relationship, with Mitsubishi saying a capital tie-up was possible.
"For Mitsubishi Motors, Peugeot would be the ideal partner," said Okasan Securities auto analyst Yasuaki Iwamoto.
"It would be tough for Mitsubishi to shoulder R&D costs for environmental technologies on its own, and if you look at the global auto industry there is a limited pool of partners to choose from."
Peugeot's interest in Mitsubishi Motors, ranked seventh of Japan's eight carmakers by January-October production, is in line with the recent push by its new boss, Philippe Varin, to create a more global car company.
Varin, who took up the chief executive post in June, has said this could be achieved through various means including forming alliances with other carmakers.
Both Peugeot and Mitsubishi have so far attempted to compete with bigger rivals through non-equity tie-ups, even as others sought deeper alliances to weather a slump brought on by the global financial crisis.
Among such moves, Italy's Fiat SpA has scooped up Chrysler with the U.S. automaker's failure, while General Motors Co, the other U.S. auto giant that filed for bankruptcy this year, is fielding interest for several of its brands from eager buyers.
"GOOD NEWS"
Peugeot, which has operational ties with carmakers ranging from Toyota Motor Corp to BMW AG, and Mitsubishi have three ongoing projects: a joint venture factory in Russia, an original equipment manufacturing (OEM) deal in sport utility vehicles, and most recently, a plan for Mitsubishi to supply its i-MiEV electric cars under the French brands.
Peugeot, which ranked eighth in the world by sales volume last year, will face increased competitive pressure from domestic rival Renault SA, which is looking to beef up its synergies with 10-year equity partner Nissan Motor Co.
That Franco-Japanese alliance is looking to lead the industry in the still-unproven zero-emission electric car segment, where Mitsubishi Motors is among the only players to have a car on sale already.
For Mitsubishi Motors, the deeper talks with Peugeot mark a reversal in its attempt to stick it out on its own with the backing of the powerful Mitsubishi group, since dissolving its equity ties with the former DaimlerChrysler group in 2005.
The maker of the Pajero sport utility vehicle had been counting on strong growth in Russia and China to lead a recovery, but that strategy was shot with the collapse of the Russian market this year.
"It's good news for Mitsubishi Motors," said Yoshihiko Tabei, chief analyst at Kazaka Securities in Tokyo. "While Mitsubishi Motors still faces other challenges, such as the reorganisation of its domestic sales network and production bases in North America, a Peugeot deal would be positive for its EV (electric vehicle) business," Tabei said.
In the first 10 months of this year, Mitsubishi Motors built just 605,000 vehicles globally, less than half the year ago period.
FINAL STAGES
The Nikkei said the two companies are in the final stages of negotiations, with Peugeot seeking a stake of more than 50 percent in Mitsubishi through the placement of new shares.
Mitsubishi may also potentially buy an interest in Peugeot, the paper said.
Mitsubishi Motors plans to use the money raised through the stake sale to buy back preferred shares issued to Mitsubishi UFJ Financial Group, Mitsubishi Heavy Industries Ltd, and other Mitsubishi companies, the Nikkei said.
Shares of Mitsubishi Heavy, the carmaker's top shareholder with a 15 percent stake, ended up 4.7 percent. Trading house Mitsubishi Corp, which holds 14 percent, gained 3.7 percent, while Mitsubishi UFJ rose 2.3 percent.
Mitsubishi Motors, valued at $7.6 billion at Wednesday's close, ended up 14 percent in a broader Topix index up 3.4 percent.
While a new share issuance could be authorised at a board meeting, given that Peugeot would gain management control, Mitsubishi would seek approval for the deal at a shareholders meeting to be held in June, the Nikkei said.
