Daimlerchrysler buys Mitsubishi for $ 2.1 bn

"Mitsubishi is the ideal partner for us to strengthen our presence in all areas of Asia. This agreement is a milestone in our Asian strategy," DaimlerChrysler Chief Juergen Schrempp said in a statement.

The German-US auto giant is to take a 34 per cent stake in Mitsubishi for 225 billion yen, giving it the power to veto board decisions under Japanese law. It will be paying 450 yen per share, below Monday’s close at 470 yen, which was up 51 yen or 12.2 percent from Friday.

Analysts said there was still much about the alliance that was unclear, but saw immediate advantages for the Mitsubishi Motors group, burdened with a whopping 1.75 trillion yen in debt.

"There’s a lot that’s still up in the air but there is no question that Mitsubishi is a lot more secure than it was," said Stephen Usher of Jardine Fleming Securities.

While details of the composition of the board and the extent to which DaimlerChrysler will get involved in Mitsubishi had yet to be revealed, the Japanese partner appeared happy.

"With this alliance, we will get access to additional resources. DaimlerChrysler will add potential economies of scale which will enhance the future of our business," Mitsubishi Motors President Katsuhiko Kawasoe said.

"We will find merit in this tie-up through maintaining autonomous management and by combining our respective strengths."

He later told a news conference no new job losses would stem from the deal.

The announcement came a year to the day after Renault SA unveiled its purchase of a controlling minority stake in Nissan Motor Co, which effectively gave up control to the French automaker. Mitsubishi is likely to insist on more independence.

Mitsubishi and DaimlerChrysler will cooperate globally on passenger cars and compact commercial vehicles, including pickup trucks, but the deal leaves intact Mitsubishi’s pact to cooperate in the truck and bus business with Sweden’s AB Volvo.

Schrempp said Daimler did not rule out teaming up with another Asian producer to develop its truck business. "I have always said that if someone comes along and knocks on our door then of course we will open the door. That remains the case," Schrempp said.

He ruled out a tie-up with Nissan Motor Co’s Nissan Diesel truck division after the company’s talks with Nissan Diesel’s parent about an alliance collapsed last year.

DaimlerChrysler is also to separately buy Ford Motor Co’s stake in Mitsubishi’s 50-50 joint venture in the Netherlands with Ford’s Volvo Cars.

The pact comes at a time when a series of cross-border alliances has swept the auto industry, now facing daunting challenges such as environmental concerns, overcapacity and an urgent need to cut costs through parts and platform sharing.

The deal, which removes one of the last Asian auto prizes from the pool of possible partners, was hammered out at the weekend by Schrempp and Kawasoe, who signed a letter of intent on Sunday.

It was unclear whether DaimlerChrysler could complete the takeover without taking on some of Mitsubishi’s debt burden.

"Excluding truck and bus debt and finance-related debt, they have about a trillion yen of debt, and this injection of capital will give them approximately 225 billion yen of new money to play with," said Howard Smith, analyst at ING Barings Securities.

"It may allow them to reduce their debt in the passenger car business by about 20-22 per cent, which is a considerable help but they have a lot more problems beyond that," he said.

DaimlerChrysler and Mitsubishi together make 6.5 million vehicles annually and the combination catapults them past Toyota Motor Corp and Volkswagen AG into the third-place spot among global automotive groups, trailing only U.S. Giants General Motors Corp and Ford Motor.

Analysts said the devil was in the detail and the implications of the deal were still difficult to assess.

"The evidence from previous alliances of this nature is that you get an initial bout of euphoria followed by rather a lot of hard work as they go through the nitty gritty," Smith said.

The effective takeover would provide DaimlerChrysler with a much-needed Asian base and small car expertise but one of the biggest question marks had been whether the deal would involve Mitsubishi’s truck division.

Under Mitsubishi’s pact with Volvo, the Swedish truckmaker has a five percent stake in Mitsubishi and will take a 19.9 percent stake in its truck business after it is spun off.

Trucks are the real jewel in Mitsubishi’s crown and analysts said they saw little reason for DaimlerChrysler to keep its hands off the truck side in the long term.

Analysts 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.

Mitsubishi, the only full-range Japanese automaker producing everything from mini cars to heavy trucks, would have to follow in the footsteps of Nissan, now undergoing painful restructuring led by Chief operating officer "le cost-cutter" Carlos Ghosn, brought in from Renault.

Mitsubishi may have more of a say in its operations, given its ties with Japan’s high-profile Mitsubishi corporate group, which held a 48.3 per cent stake in the automaker a year ago although the size of this holding will fall, analysts said.