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DaimlerChrysler, Mitsubishi agree to tie-up

TOKYO: Japan's Mitsubishi Motors Corp has agreed to sell a minority controlling stake to DaimlerChrysler AG in a deal which would create the world's third biggest auto group, Japanese media said on Sunday.

The German-U.S. auto giant is expected to take a 33.4 percent stake, giving it the power to veto board decisions under Japanese law and is expected to pay 1.3 billion euros ($1.33 billion) for the holding.

The agreement was reached in a meeting in Germany on Saturday between DaimlerChrysler chief Juergen Schrempp and Mitsubishi Motors President Katsuhiko Kawasoe, Kyodo news agency said.

Details of the agreement were not immediately known, it said. A Mitsubishi spokesman declined to comment.

Industry sources in Tokyo have said the two firms were negotiating to sign a letter of intent by next week and a DaimlerChrysler supervisory board source told Reuters on Friday he expected the companies to announce a deal on Monday.

The announcment would come a year to the day that France's Renault SA announced its purchase of a controlling minority stake in Nissan Motor Co.

Japanese media said contractual issues involving Mitsubishi's 50-50 joint venture in the Netherlands with Ford Motor Co's unit Volvo Cars had meant a pact before March 29 was necessary.

DaimlerChrysler is expected to buy Ford's stake in the venture.

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

"And it's also probably only going to be a letter of intent at the moment which means that they might just change their minds again later," said an analyst at a foreign securities house.

The effective takeover would provide DaimlerChrysler with a much-needed Asian base and small car expertise but one of the biggest question marks hangs over whether the deal involves Mitsubishi's truck division.

Mitsubishi already has an agreement with Swedish truckmaker AB Volvo to work together on trucks. AB Volvo has a five percent stake in Mitsubishi and will take a 19.9 percent stake in Mitsubishi's truck business once the division is spun off.

Volvo Chief Executive Leif Johansson has said that Volvo's agreement with Mitsubishi was "tight", and a Mitsubishi deal with DaimlerChrylser could not include trucks and buses.

But trucks are the real jewel in Mitsubishi's crown. While there is some speculation a deal may only involve a stake in Mitsubishi's car division, analysts see little reason for DaimlerChrysler to keep its hands off the truck side.

The effective takeover would also help Mitsubishi with its debt, which totalled 1.75 trillion yen ($16.3 billion) on a group basis as of end-September.

German newspaper Welt am Sonntag reported DaimlerChrysler planned to complete the takeover without taking on any of that debt but analysts say one of Mitsubishi's main motivations to seek a deal is to lighten its debt load.

DaimlerChrysler and Mitsubishi together make 6.5 million vehicles annually and a combination would catapult 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 Co.

Their alliance 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 would bring the Stuttgart-based automaker a step closer to its goal of generating about 25 percent of group sales in Asia. In 1999, it generated less than four percent of total sales from the region.

Analysts also worry about a potential clash of cultures.

Mitsubishi's ties with the former Chrysler Corp weakened after the U.S. automaker steadily sold off its 22 percent 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.

But 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 percent stake in the automaker a year ago although the size of this holding will fall, analysts said.

The deal would take the last available Japanese carmaker out of the pool of potential partners in the auto industry's rush to consolidate. Only Toyota Motor and Honda Motor Co remain strong, fully independent firms.

Both companies had become increasingly isolated in the flurry of global alliances involving Asian automakers, especially after talks between DaimlerChrysler and Nissan collapsed a year ago and the passenger car division of AB Volvo was bought out by Ford.-Reuters