TOKYO - Talks on a takeover that would create the world's third-largest carmaker appeared to gather speed here late last week amid reports that an agreement for DaimlerChrysler AG to acquire control of Mitsubishi Motors Corp. could come as early as today, March 27.
Although neither company would comment officially, industry sources said DaimlerChrysler Chairman Juergen Schrempp was expected to arrive in Tokyo Saturday for final talks with MMC President Katsuhiko Kawasoe.
An agreement is expected to give DaimlerChrysler at least a controlling 33.4 percent stake in the heavily indebted Japanese automaker. Under Japanese law, that would give it effective management control.
Although it is unclear how a deal might be structured, a 33.4 percent holding taken through the issue of new shares would be valued at about $1.86 billion, based on Mitsubishi Motors' current share price.
The way for a final agreement was paved last Wednesday, March 22, when Mitsubishi directors gave Kawasoe unrestricted authority to negotiate a merger agreement.
'This sounds like a done deal already,' said Takaki Nakanishi, auto analyst at Merrill Lynch Japan.
A combined company would have global production of about 6.5 million vehicles, compared with about 8.9 million for GM and 8.2 million for Ford Motor Co.
It would have a market share of 18.2 percent in the United States, 6.8 percent in Western Europe, 11.0 percent in Japan, and, including Mitsubishi affiliate Proton of Malaysia, about 22 percent in Southeast Asia.
But Nakanishi and other analysts point out that several major issues remain to be resolved - before, and after, an agreement.
'This is probably a good combination, with good synergies,' Nakanishi said. 'But there are very difficult issues to its effective implementation. The risk is high.'
The biggest potential sticking points:
Mitsubishi's existing truck agreement with AB Volvo. Under that agreement, Mitsubishi will spin off its medium- and heavy-truck business into a unit owned 19.9 percent by AB Volvo, and sell a 5 percent stake in Mitsubishi Motors to Volvo. The accord is known to be highly unpalatable to Daimler, although it is not thought to be a deal buster. 'Mitsubishi's truck business is the true jewel in the crown,' said an analyst in London who asked to remain unidentified. 'DaimlerChrysler desperately wants that business to spearhead its drive into Asia.'
The future of Mitsubishi's weak U.S. sales operation. Few analysts believe DaimlerChrysler will want to continue to nurture a brand scraping along with only 1.5 percent of the U.S. market, less than Plymouth brand's share when it was killed. A move to kill the U.S. sales operation, however, could encounter stiff resistance from Mitsubishi executives.
'I'd give Mitsubishi 18 to 36 months before D/C kills it,' said Todd Turner, analyst with Car Concepts in Thousand Oaks, Calif.
'They'll quickly find that it's a difficult brand to market because its products are pushed to market, not pulled by it. Mitsubishi has some pretty good products, but they require a great deal of marketing support. The name is not appealing, and it's not something that you want to rush out and check out.'
Said another Tokyo analyst: 'At the end of the day, it's far more important to DaimlerChrysler that Mitsubishi have a brand image in Japan and Asia than in North America.'
NedCar, Mitsubishi's joint venture with Volvo in the Netherlands. The plant's future has been up in the air since Ford bought Volvo Cars and said it wanted the next model built there to be based on a Ford platform, not a Mitsubishi platform. Daimler most likely will have to pony up the cash to buy out Ford's stake in the plant since MMC can't afford to.
The relationship with the rest of the huge Mitsubishi Group. As part of an agreement with DaimlerChrysler, the other companies in the Mitsubishi Group would reduce their combined stake in Mitsubishi Motors to a matching 33.4 percent, according to news reports in Tokyo. That could be a recipe for disaster, some analysts warned.
'I think the partnership would face some serious political issues,' Nakanishi said.
Although Mitsubishi officials have hinted in the past that other potential bidders including Ford and Fiat S.p.A. have shopped the company, DaimlerChrysler has long been the frontrunner.
'Both parties need this deal to happen,' said Steve Usher, an auto analyst at Jardine Fleming Securities (Asia) Ltd in Tokyo.
'Mitsubishi has neither the resources nor the balance-sheet strength to stay independent. And DaimlerChrysler wants an Asian play, and Mitsubishi is one of the few plays still available.'
Staff Reporter Mark Rechtin in Los Angeles contributed to this report