PSA Peugeot Citroen and Mitsubishi Motors Corp’s managers met this week in Tokyo to negotiate a deal that may give the French carmaker a controlling stake in the Japanese company, two people familiar with the matter said.
A transaction would involve a share swap, said the people, who asked not to be identified because the talks are confidential. At least four scenarios are being discussed, one of the people said. One proposal has centered around Peugeot taking 51 per cent of Mitsubishi in exchange for $1.8 billion in cash and 18 per cent of Peugeot, although that plan didn’t win support, the people said.
Peugeot and Mitsubishi said on December 3 that they were in talks on the French company’s possible purchase of a holding as well as more joint vehicle production and development. A stake acquisition would reverse Peugeot’s strategy of restricting tie- ups to manufacturing alliances. Its partnerships with Tokyo-based Mitsubishi include a Russian venture and pooled production of four-wheel-drive and electric vehicles.
“Where the whole thing may break down is that Mitsubishi needs cash and Peugeot doesn’t have it,” said Philippe Houchois, a London-based UBS AG analyst.
Peugeot fell 97 cents, or 3.6 per cent, to ¤25.70 in Paris trading, the biggest decline since October 27. Mitsubishi gained ¥10, or 7.5 per cent, to ¥144 in Tokyo, the largest jump since December 3.
The French carmaker is seeking a closer partnership abroad as rivals increase their presence in Asia. Volkswagen AG, Europe’s biggest carmaker, agreed in December to buy 19.9 per cent of Hamamatsu, Japan-based Suzuki Motor Corp, a transaction completed today. French rival Renault SA has been integrating more tightly with Nissan Motor Co., its 44 per cent-owned affiliate.
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Hugues Dufour, a Peugeot spokesman, said a management delegation met Mitsubishi representatives in Tokyo this week as part of the companies’ regular exchanges on existing cooperation agreements. He declined to say whether there were further tie-up discussions during the visit.
Kazuhiro Yamana, a Mitsubishi spokesman, said he couldn’t confirm the meeting and called a share swap transaction between the carmakers “speculation.”
The companies may give an update in the second week of February when Paris-based Peugeot is scheduled to release earnings, the people said.
One of the options under discussion may involve Mitsubishi taking a bigger Peugeot stake than the 18 per cent envisaged earlier, one of the people said. Another scenario would see Peugeot take a large minority stake, according to a person with knowledge of the talks. Renault took effective control of Nissan in 1999 through an initial 37 per cent holding.
Acquiring a Mitsubishi stake may stretch finances at Peugeot, Europe’s second-largest automaker, which had ¤2 billion ($2.9 billion) in net industrial debt as of June 30 and bonds rated below investment grade by Standard & Poor’s. Peugeot and Mitsubishi each have a market value of about $8.7 billion. Still, the French carmaker sells three times as many vehicles and generates four times as much revenue.
UBS’s Houchois, who has a “buy” recommendation on Peugeot stock and doesn’t cover Mitsubishi, predicted “market disappointment” if the French carmaker ends up putting significant cash into a tie-up with its partner, because the combination would deliver limited volume and savings gains.
“There’s too little overlap to create proper scale,” Houchois said. “If they use all their cash to make this deal happen they won’t have the resources left to do another deal that does give them real scale.”
Renault and Yokohama, Japan-based Nissan are investing jointly in India, where the French company forecasts the car market, Asia’s fourth-biggest, will triple in 10 years. They also plan to use OAO AvtoVAZ plants to build models in Russia. Volkswagen’s stake in Suzuki gives it a tie to the partner’s Maruti Suzuki India Ltd unit, which accounts for about half the cars sold in India. Suzuki said December 16 that it aims to add small-car production in emerging markets including Pakistan, Indonesia and Vietnam.
Mitsubishi, which has posted losses in the last four quarters because of declining sales and a strengthening yen, would be seeking investments from an overseas automaker for a second time.
Stuttgart, Germany-based Daimler AG held 37 per cent of the Japanese automaker following stock purchases in 2000 and 2001, eventually dumping the holding after refusing to join a rescue in 2004.
The Japanese company posted a net loss of ¥36.4 billion ($400 million) for the six months ended September 30. The maker of Lancer small cars is forecasting a full-year profit of ¥5 billion, compared with last year’s net loss of ¥54.9 billion.
Peugeot is forecasting that it will report a break-even result at the recurring-operating profit level for the second half, which would mean a full-year loss equal to the ¤826 million recorded in the first half.
Peugeot and Mitsubishi signed an agreement in September to design an electric car based on the Japanese carmaker’s i-MiEV battery-powered model, to be sold in Europe by the end of 2010.