Nissan taking 34% stake in Mitsubishi Motors for $2.17 billion; expanding the Alliance model at a good discount
Following an MMC share issue, Nissan Motor will take a 34% equity stake in Mitsubishi Motors Corporation (MMC) for ¥237 billion (US$2.17 billion). The two companies have signed a Basic Agreement to form a strategic alliance, extending an existing partnership under which the two companies have jointly collaborated for the past five years.
The investment and alliance comes as MMC struggles to deal with the aftermath of its recently revealed fuel consumption testing cheating in Japan with mini-cars and other models. Nissan was the one which first brought the discrepancies in minicar testing to light; MMC produces minicar models for Nissan in Japan. (Earlier post.)
Following MMC’s revelation of the testing cheating on 20 April 2016, it share price on the Tokyo exchange plunged 51.2%, dropping from ¥864 per share on 19 April to a low of ¥422 on 27 April.
Under the terms of the transaction, Nissan will purchase 506.6 million newly-issued MMC shares at a price of ¥468.52 (US$4.29) per share. The price per share reflects the volume weighted average price over the period between 21 April 2016—post-revelation of the cheating—and including 11 May 2016—pre-revelation of Nissan’s investment. This works out to roughly a 45% discount to pre-revelation pricing. Nissan will become the largest shareholder of MMC on closing. MMC’s share price has rebounded to close at ¥575 today.
|MMC share price on the Tokyo exchange over last three months. Volume chart shown beneath price chart. Charts courtesy of Financial Times. Click to enlarge.|
Under the new strategic agreement, Nissan and MMC will cooperate in areas including purchasing, common vehicle platforms, technology-sharing, joint plant utilization and growth markets.
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.—Carlos Ghosn, chief executive and president of Nissan
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.