Please ensure Javascript is enabled for purposes of website accessibility

Nissan Joins the Ranks of the Global Auto Giants

By John Rosevear - May 12, 2016 at 2:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Nissan has struck a deal to take control of scandal-battered Mitsubishi Motors. Once completed, the Renault-Nissan-Mitsubishi alliance will vault into the ranks of the world's largest automakers. Here's what we know.

Nissan CEO Carlos Ghosn. Nissan has struck a deal to take a controlling stake in scandal-plagued rival Mitsubishi Motors. Image source: Nissan.

Nissan (NSANY -0.39%) announced on Thursday that it will spend 237 billion yen ($2.2 billion) to acquire a controlling stake in rival Mitsubishi Motors (MMTOF -6.97%), which is reeling from a fuel-economy scandal. 

What the companies said

The companies characterized the move as a "far-reaching strategic alliance." According to their joint statement:

The strategic alliance will extend an existing partnership between Nissan and MMC [Mitsubishi Motors Corporation], under which the two companies have jointly collaborated for the past five years... Nissan and MMC have agreed to cooperate in areas including purchasing, common vehicle platforms, technology-sharing, joint plant utilization and growth markets... Under the terms of the transaction, Nissan will purchase 506.6 million newly issued MMC shares at a price of 468.52 yen per share. The price per share reflects the volume weighted average price over the period between April 21 2016 and including May 11 2016. Nissan will become the largest shareholder of MMC on closing... On closing, MMC will propose Nissan nominees as board directors in proportion to Nissan's voting rights, including a Nissan nominee to become Chairman of the Board.

The context: Mitsubishi is reeling from a scandal

Mitsubishi Motors' share price and reputation have both been badly hit in recent weeks. The company admitted in April that it had falsely inflated fuel-economy results on many of the vehicles it sold in Japan for years. Mitsubishi's stock was hammered by the admission, losing over 40% of its value before news of the Nissan deal broke on Wednesday. 


MMTOF data by YCharts.

That left the company open to an acquisition, and Nissan CEO Carlos Ghosn was quick to strike a friendly deal. In a press conference on Thursday after the deal was formalized, Ghosn said that Nissan would benefit from Mitsubishi's strong sales network in Southeast Asia as well as from increased economies of scale generally. 

Another step in the slow consolidation of Japan's auto industry 

It's the latest move in the slow consolidation of Japan's auto industry, following rival Toyota's (TM -1.40%) friendly $3 billion acquisition of longtime partner Daihatsu last year. 

For its part, Nissan is already effectively merged with French automaker Renault (RNSDF -17.39%). Ghosn, who is CEO of both Renault and Nissan, said that the lessons learned from the Renault-Nissan "alliance" would inform his approach to integrating Mitsubishi into Nissan's operations. 

It helps that the two companies have a history of cooperation. Nissan and Mitsubishi have partnered on mini-cars for the Japanese market, and Nissan has in the past built Mitsubishi-badged versions of some Infiniti models. And Mitsubishi once manufactured a Nissan-badged pickup that was sold in some global markets. 

But once fully realized, this deal will likely vault the Renault-Nissan alliance into the top ranks of the world's automakers. The combined companies sold 8.5 million vehicles in 2015, while Mitsubishi Motors sold another 1.2 million. Added together, the group would have been the fourth-largest automaker last year, trailing third-place General Motors by only a small margin.

In time, this will look like a good move for Nissan

In the near term, there's a mess to clean up. Nissan will have to help Mitsubishi recover from its scandal. On top of the public-relations challenge in its home market, Mitsubishi may be required to pay nearly $1 billion in compensation to Japanese customers who bought mini-cars with falsely inflated fuel-economy claims. 

But in the longer term, as Mitsubishi is integrated into its acquirer's operations, Nissan (and Renault) will benefit by adding the beleaguered company's distribution networks and incremental scale. 

John Rosevear owns shares of General Motors. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Nissan Motor Co., Ltd. Stock Quote
Nissan Motor Co., Ltd.
$7.67 (-0.39%) $0.03
Mitsubishi Motors Corporation Stock Quote
Mitsubishi Motors Corporation
$3.47 (-6.97%) $0.26
Renault SA Stock Quote
Renault SA
$22.90 (-17.39%) $-4.82
Toyota Motor Corporation Stock Quote
Toyota Motor Corporation
$154.02 (-1.40%) $-2.18

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/09/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.