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Nissan pounces, expands Alliance by buying big stake in Mitsubishi

POSTED BY Nigel Andretti ON 13 May 2016

IN the wake of Mitsubishi Motors’ fuel consumption cheating with Japanese mini-cars and other models, rivals Nissan has pounced to buy a 34 percent equity stake in Mitsubishi Motors Corporation (MMC) for ¥237 billion (RM8.73 billion).

The two companies announced yesterday they 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.

Nissan was the one which first brought the discrepancies in minicar testing to light; MMC produces minicar models for Nissan in Japan.

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 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.

“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 (main pic) said in a statement.

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.

In April, Mitsubishi Motors Corporation (MMC) admitted to manipulating fuel consumption testing data for some 625,000 mini-cars representing four models it manufactured for sale in Japan by itself and partner Nissan.

MMC said this week that its internal hearings into the cheating suggest that the method used to cheat — the improper calculation of running resistance — was also applied in nine other models currently sold in Japan, as well as in other models no longer sold in Japan.

The use of the calculations is also suspected on the RVR and some other models, and investigations into the background and details are ongoing and will be announced separately.

The findings came in a report submitted by Mitsubishi Motors Corporation (MMC) to the Ministry of Land, Infrastructure, Transport and Tourism (MLIT), pursuant to instructions received from MLIT on 20 April to investigate improper conduct in fuel consumption testing of vehicles manufactured by MMC.

The investigation found that the improper manipulation of running resistance to present better fuel consumption rates began with the development of the fuel-economy grade for the model year 2014 eK Wagon and Dayz (Application for the certifications submitted February 2013). Running resistance for other grades (standard grade, turbo grade, 4WD grade) as well as for the eK Space and Dayz Roox and each model year change were simulated using testing data from the fuel-economy grade vehicles.

During the development of the fuel-economy grade, the fuel consumption target was raised a total of five times, from 26.4 km/L (62 mpg) to 29.2 km/L (68.6 mpg). Development progressed based on an overly optimistic outlook because of deep concern regarding new competitor fuel consumption levels, even though realistic attainment of the targets was problematic, MMC’s report said.

The coordinators at the time were well aware that fuel consumption meant “the factor that would give the most product marketing appeal” — so they felt that the fuel consumption improvement targets requested by managers and executives were absolute.

Administrative managers in development-related departments did not communicate well enough with the subcontractor so did not confirm the real situation, even though they understood the problematically high fuel consumption targets.

MMC said that it is considering “drastic reforms” in order to prevent recurrence.

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