NEW YORK (CNNfn) - DaimlerChrysler agreed Monday to buy a controlling 34 percent stake in Japan's Mitsubishi Motors Corp. for roughly 2.1 billion euros, or $2 billion, opening the Asian market up to the German-American automaker as the industry continues its global consolidation rush.|
Besides giving DaimlerChrysler the toehold it has long sought in Asia, the deal also gives it access to the small-car expertise of Mitsubishi, Japan's fourth-largest automaker, although it doesn't involve combining the companies' operations.
Automakers are striking cross-border alliances as overcapacity prompts them to cut costs by sharing development costs, parts and vehicle platforms with manufacturers in many markets.
In just the last month General Motors Corp. (GM: Research, Estimates) agreed to buy a 20 percent stake in Italian automaker Fiat SpA for $2.4 billion in GM stock, while Ford Motor Co. (F: Research, Estimates) agreed to buy the British sports/utility manufacturer Land Rover from German automaker BMW Group for $2.9 billion. GM and Ford are now bidding for troubled Korean automaker Daewoo Motors as well.
Asia is seen as the fastest growing market for automobiles in the coming years. All the major automakers have been looking for the market entry as well as the small cars that consumers in developing markets such as China are expected to buy in the coming years.
Not seen as the last deal
Together DaimlerChrysler (DCX: Research, Estimates) and Mitsubishi will have a combined market share of about 10.8 percent in Japan, and 9.4 percent in other parts of the Asia-Pacific region. DaimlerChrysler, which becomes the third largest automaker in the world behind GM and Ford if Mitsubishi is included in its holdings, will have the right to veto board-level decisions at Mitsubishi.
"Mitsubishi Motors is the ideal partner to increase DaimlerChrysler's presence in all parts of Asia," said Juergen Schrempp, the company's chairman, in a statement. "Outside of Japan, (Mitsubishi) has the largest market share in Asia."
This isn't likely to be the last move in Asia for the German-American concern, according to one analyst.
"It doesn't give them the critical mass they need in Japan or any other Asian market," said Rod Lache, analyst with Deustshe Banc Alex. Brown. "They want to have 25 percent of the Asian market. It's very strongly implied there will be more m&a activity in the market."
The problem is that potential partners are rapidly disappearing in Asia and elsewhere. Leading Japanese automaker Toyota Motors Corp. (TM: Research, Estimates), which is bumped down to the world's fourth largest automaker by Monday's deal, has indicated a preference to stay independent, as has Honda Motor Co. (HMC: Research, Estimates).
Analysts likened the alliance to French automobile leader Renault's (PRNO) purchase last year of a 37 percent stake in Nissan Motors - another debt-strapped Japanese carmaker. Also Monday, DaimlerChrysler's leading German rival Volkswagen announced plans to buy a 19 percent stake in Swedish truck maker Scania for $1.6 billion.
DaimlerChrysler's deal excludes Mitsubishi's trucks division, which has an alliance with Sweden's AB Volvo. That was about the only disappointment of the announcement to many analysts. DaimlerChrysler already is the world's leading heavy truck manufacturer, and some had hoped this would strengthen its position in that sector.
Schrempp said that as a result of the alliance, between 22 and 23 percent of the company's revenue will now come from Asia, which has been showing signs of emerging from economic slump and lingering recession in Japan, the continent's biggest economy.
An automotive industry analyst said DaimlerChrysler's move into Asia was well timed.
"Asia's volume growth rates are expected to outstrip those of Europe and the U.S. over the next ten years," said Richard Baldwin, a fixed-income analyst with Chase Manhattan in London.
DaimlerChrysler will pay 450 yen per share for the stake, a premium of about 7.4 percent over Mitsubishi Motors' closing stock price Friday. The shares rose 51 yen, or 12 percent, to 470 yen in Tokyo Monday. Shares of DaimlerChrysler closed up 0.10 euros to 70.30 euros in Frankfurt trading Monday, after reaching as high 71.80 euros earlier in the day. In New York† shares slipped 1/4 to 67-1/4 in afternoon trading.
Both companies benefit from deal structure
Because the deal keeps the companies' operations separate - although DaimlerChrysler will take part in the decision-making process at Mitsubishi - the German-American auto giant avoids the heavy debts that have been a big strain on Mitsubishi's balance sheet.
"The debt Mitsubishi Motors has will not show up on our balance sheet," Schrempp said.
One irony of the deal is that Chrysler Corp., the former U.S. automaker purchased by Daimler Benz in 1998 to form DaimlerChrysler, once held a 24 percent stake in Mitsubishi Motors, as well as being partners in a 50-50 joint venture in a Illinois small car plant known as Diamond-Star Motors Corp. But difficult economic times for Chrysler forced it to sell those stakes off in the early 1990s, finally selling the last 6 percent of Mitsubishi in July 1993.
For Mitsubishi, the alliance offers a broad platform to distribute its technological know-how around the world. The companies said they would cooperate as equal partners in Mitsubishi's Netherlands Car BV, or Nedcar, which is expected to be a key launching pad for the development and production for small cars destined for the European market.
DaimlerChrysler is banking on its pint-sized Smart car unit to boost its presence in the small-car segment. Baldwin said DaimlerChrysler faces questions about how to tap Mitsubishi's knowledge base in small cars, and what it will cost to do so.
Mitsubishi Motors is the car-making operation of Japanese "keiretsu" - or conglomerate - Mitsubishi Group, which has labored under the burden of the auto unit's heavy debts.
Still, the automotive unit has been in the midst of a vast effort to revitalize itself by reducing its product slate, increasing efficiency and lowering costs - what Mitsubishi Motors President Katsuhiko Kawasoe calls a "transformation."
"We came to the conclusion that DaimlerChrysler was the ideal partner for our car operation," Kawasoe said in a news release. "We see a lot of further opportunities, especially in development of new products, engines and environmental technology, and we will start working on joint projects at full speed."