DaimlerChrysler set to take over Mitsubishi

The Japanese automaker will accept the offer on condition that DaimlerChrysler agrees to protect jobs and keep the Mitsubishi brand name, the newspaper said.

The effective takeover would provide DaimlerChrysler a much-needed Asian base and small car expertise while helping Mitsubishi with its heavy debt, which totalled 1.75 trillion yen ($16.4 billion) on a group basis as of the end of September.

DaimlerChrysler and Mitsubishi together make 6.5 million vehicles annually and a combination would catapult them past Toyota Motor Corp and Volkswagen AG into the third-place spot among global automotive groups, trailing only US giants General Motors Corp and Ford Motor Co.

But investors seemed unimpressed by the deal and Mitsubishi’s shares ended down 1.2 per cent at 410 yen, as analysts pointed to the long, difficult struggle faced by other foreigners that had taken control of ailing Japanese automakers.

"The market reacted coolly as investors know after seeing the Mazda-Ford alliance and the Nissan-Renault tie-up that equity links with a foreign auto giant will not mean an overnight turnaround for Mitsubishi," said Seiji Sugiura, auto analyst at Nomura Securities.

In 1996, Ford became the first foreign firm to gain control of a Japanese automaker by buying 33.4 per cent of Mazda Motor Corp, but export-dependent Mazda is still struggling as a strong yen squeezes profits. And Nissan Motor Co has just launched a drastic three-year programme of job cuts and plant closures under the tutelage of Renault SA, which took a controlling minority stake in it last year.

Although it is not clear how a deal with DaimlerChrysler may be structured, a 33.4 per cent holding taken through the issue of new shares would be valued at about $1.86 billion, based on Mitsubishi Motors’ current share price.

The deal would take the last available Japanese carmaker out of the pool of potential partners in the auto industry’s rush to consolidate. Only Toyota Motor and Honda Motor Co remain strong, fully independent firms.

"In negotiations with a foreign automaker, the board has entrusted the president with decisions on an alliance partner and the contents of the alliance," a Mitsubishi spokesman said.

Although the company did not identify who it is negotiating with, sources say it is DaimlerChrysler and that an announcement of a deal is likely in the next two weeks.

DaimlerChrysler Chief Executive Juergen Schrempp also said on Tuesday he believed a deal with an Asian automaker may happen soon, although the company declined to comment on Wednesday on whether it was about to take a stake in Mitsubishi.

Japan’s Jiji news service, quoting unnamed sources, reported on Wednesday the two companies are also considering jointly developing a so-called "three-litre car", using Mitsubishi’s gasoline direct injection engine technology, that could run 100 kilometres on three litres of gasoline.

Both companies had become increasingly isolated in the flurry of global alliances involving Asian automakers, especially after negotiations between DaimlerChrysler and Nissan collapsed a year ago and the passenger car division of AB Volvo, a key Mitsubishi partner, was bought out by Ford.

But analysts point to several unanswered questions about the deal, including what would happen to Mitsubishi’s decision last October to spin off its truck and bus business, in which AB Volvo, now specialising in trucks, would take a 19.9 per cent stake.

Volvo Chief Executive Lei Johansson said last week that Volvo’s agreement Mitsubishi was "tight" and a Mitsubishi deal with DaimlerChrylser could not include trucks and buses. But trucks are the real jewel in Mitsubishi’s crown. While there is some residual speculation a deal may only involve a 33.4 per cent stake in Mitsubishi’s car division, analysts see little reason for DaimlerChrysler to keep its hands off the truck side.

Analysts also worry about a potential clash of cultures.

Mitsubishi ties with the former Chrysler Corp weakened after the US Automaker steadily sold off its 22 per cent Mitsubishi stake, and Mitsubishi’s relationship with Daimler has been rocky. The two explored plans for a broad alliance in the early 1990s that came to little and is reported to have ended in ill-feeling.