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DaimlerChrysler set to get Mitsubishi cars only

TOKYO: DaimlerChrysler AG is set to pay two billion euros for a minority controlling stake in Mitsubishi Motors Corp, but will not get the Japanese automaker's prized truck division, media said on Monday.

The agreement, to be announced later in the day in Frankfurt, would create the world's third-biggest auto group, but Jiji news agency said it is expected to leave intact Mitsubishi's pact to cooperate in the truck and bus business with Sweden's AB Volvo.

The 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, which removes one of the last Asian auto prizes from the pool of possible alliance partners, was hammered out over the weekend in talks between DaimlerChrysler chief Juergen Schrempp and Mitsubishi Motors President Katsuhiko Kawasoe, Japanese media said.

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. It was unclear whether DaimlerChrysler could complete the takeover without taking on some of Mitsubishi's 1.75 trillion yen debt burden. Mitsubishi is eager to lighten that load. Foreign analysts said the purchase price would be two billion euros, roughly the market price of a one-third stake in Mitsubishi.

A 33.4 percent stake in Mitsubishi at Friday's share closing price of 419 yen would cost $2.15 billion on a fully diluted basis or $1.93 billion if Mitsubishi's convertible bond issue is not included, said Howard Smith at ING Baring Securities.

At midday on Monday Mitsubishi's shares were at 440 yen, up five percent from Friday.

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

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.

PRESSED FOR TIME

Kawasoe will remain as president of Mitsubishi Motors, and the German-U.S. auto giant will send an executive to Mitsubishi to serve as vice president, Jiji said.

DaimlerChrysler is also to buy Ford Motor Co's stake in Mitsubishi's 50-50 joint venture in the Netherlands with Ford's Volvo Cars, it said.

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

"For now it will only be a letter of intent, so there is room for things to change as DaimlerChrysler checks out Mitsubishi's financial prosition and just how much of the company it wants to buy," said Seiji Sugiura, an analyst at Nomura Securities.

The effective takeover would provide DaimlerChrysler with a much-needed Asian base and small car expertise but one of the biggest question marks has been whether the deal would involve 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 after it is spun off. But trucks are the real jewel in Mitsubishi's crown and analysts said they saw little reason for DaimlerChrysler to keep its hands off the truck side in the long term.

POTENTIAL CULTURE CLASH

Analysts worry about a potential clash of cultures.

Mitsubishi 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 minicars 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.-Reuters