Nissan Motor Co has become a controlling shareholder after agreeing to buy 34% of Mitsubishi Motors Corp, who is now currently in deep waters after confessing to have been using false fuel economy data for the past 25 years. Nissan will acquire a stake worth $2.18 billion or 237.4 billion yen.
Under the contract, the new chairman will be from Nissan and will get representation on Mitsubishis board, on the basis of its stake in the company. Both companies will work together to rebuild the carmakers credibility. Mitsubishi intends to make reforms in its corporate culture.
The final agreement is anticipated to be made by May 25.
Both automakers have a manufacturing and vehicle-development partnership with each other since 2011, but it does not involve any cross-shareholding.
Nissan CEO Carl Ghosn stated in a news conference: “We believe we can realize billions of dollars in one time and continuing synergies by working closely together.”
Ghosn also said one major reason for the agreement was enhancing performance in kei cars, a Japanese category of small cars. Nissan will gain advantage in Japans small car market, where it is primarily dominated by Suzuki and Toyotas Daihatsu.
Another positive effect is that Nissan will get a boost in fast-growing Asian economies like Thailand and Philippines, where Mitsubishi is more widely recognized.
Nissan shares closed down 1.4%, while Mitsubishi shares were untraded before climbing 16% in Tokyo on Wednesday, following news of a possible procurement. Since the carmaker’s revelation in April, the stock has lost almost one-third of its value. Nissan believes Mitsubishis brand image and credibility has been brutally damaged by the scandal.
“We are determined to preserve and nurture the Mitsubishi brand, and we will help this company to address the challenges it faces, particularly in restoring consumer trust in its fuel-economy performance.” Ghosn further added.
Mitsubishi also stated that it will expand investigation from four models to 13 models. All of these are manufactured and sold in Japan, while two of the scandal-hit models were supplied to and sold by Nissan. Approximately 625,000 mini cars were described to be involved by the fraud, causing the company to cease production immediately.
The data manipulation scandal was discovered by Nissan during the time it was working with Mitsubishi on the development of a new mini car. Mitsubishi is under its third scandal in two decades and has had $3 billion gone from its market value.
Ghosn mentioned he had been reassured by Mitsubishi Motors CEO Osamu Masuko over the size and scope of the fuel economy dilemmas, which Masuko said had accelerated discussions.