Japan's Mitsubishi and France's Peugeot-Citroen are reportedly in the middle of talks that would result in something of a repeat of the largely successful Nissan-Renault alliance.
According to Business Week, a likely scenario is Peugeot buying a 53% stake in Mitsubishi, with Mitsubishi in turn buying an 18% stake in Peugeot, though Japan's Nikkei English News reports that only a 30-50% stake is being discussed. The former scenario would cost Peugeot $3.8 billion while the latter would top out at $3.5 billion.
If the deal goes through, Peugeot will become the third foreign owner of Mitsubishi after Chrysler and Mercedes-Benz, but there are numerous questions surrounding its viability. For starters, Mitsubishi is a bit player in almost every market of value that Peugeot wants to expand in or gain access to. There would be little gained by the French in India or China, and rumors of a Mitsubishi exit from North America have persisted for nearly half a decade. Mitsubishi's expertise in SUVs and electric cars would be far more valuable, but that could be gained by an expansion of the existing tie-up between the two automakers (the two have a joint factory in Russia plus Peugeot and Citroen sell rebadged versions of the Mitsubishi Outlander), saving Peugeot a considerable amount of money. The benefit for Mitsubishi would be access to a wider range of product, something that it badly needs. It has a small lineup and several of its models, such as the Galant, are badly in need of a redesign.
The biggest winners, according to Business Week, would be several Mitsubishi Group companies that collectively own about a third of the automaker. If Peugeot (or anyone else) buys Mitsubishi, the companies would not be expecting considerable dividends on the preference shares that they hold as a result of a 2005 bailout of the automaker. Estimated at around $230 million per year, these payments would further strip of much-needed cash and possibly push it towards bankruptcy -- and foregoing the payments could trigger a shareholder revolt. With a sale, they could trade in these preference shares, avoiding either outcome.
What do you think? Is it a good idea for long-struggling Mitsubishi and relatively rudderless Peugeot to merge, or should they look for other ways to strengthen their ties?
Thanks to: Motor Trend