French carmaker Peugeot Citroen could buy a large stake in Japanese peer Mitsubishi Motors as part of a plan to deepen ties to ride out the industry's worst ever slump.
Mitsubishi Motors shares closed 13.4 per cent higher today after the Nikkei business daily reported Peugeot, Europe's second-biggest carmaker, may take a 30-50 per cent stake for up to 300 billion yen (€2.25 billion).
Peugeot shares were up 0.3 per cent earlier this morning.
Both companies confirmed they were in talks to strengthen their existing relationship, which would create a leader in electric vehicles, with Mitsubishi saying a capital tie-up was possible. A Peugeot spokesman declined to comment on how long talks could last.
The Nikkei said top management at Mitsubishi were ready to accept a majority acquisition of the company by Peugeot if conditions were right.
CM-CIC analyst Guillaume Angue said in a note the alliance would make sense from an industrial viewpoint and it would allow Peugeot to solve its problems of size, but it would come a bit early in the business cycle.
Mitsubishi remained expensive with an enterprise value to sales ratio of 0.64 against 0.2 at Peugeot, he said.
Morgan Stanley analyst Adam Jonas said in a note there were "no significant areas of near-term savings," adding "cultural/integration risks are extremely high", while the negotiation process, especially regarding financing, could take up to several months.
Peugeot's interest in Mitsubishi Motors, ranked seventh of Japan's eight carmakers by January-October production, is in line with the recent push by new chief executive Philippe Varin to create a more global car company.
Varin, who took on the role in June, has said this could be achieved by various means, including alliances with other carmakers.
Peugeot, ranked eighth in the world by sales volume last year, will face increased competitive pressure from domestic rival Renault which is looking to beef up its synergies with 10-year equity partner Nissan Motors.
That Franco-Japanese alliance is looking to lead the industry in the unproven electric car segment, where Mitsubishi Motors is among the only players to have a car on sale.
Reuters