DaimlerChrysler looks set to raise Mitsubishi stake

DaimlerChrysler looks set to raise Mitsubishi stake
REUTERS

TOKYO, SEPT 4: DaimlerChrysler looks set to gain more management control at Mitsubishi Motors after a scandal over the Japanese firm's cover-up of customers' complaints.

The German-US firm will lift its stake to 40 per cent from 34 per cent, Japanese media reports said on Monday. NHK public television, reporting the likely rise in DaimlerChrysler's holding, also said the Stuttgart-based company would take a fourth seat on the board of the Japanese automaker. It did not cite sources for the report.

The scandal, in which Mitsubishi Motors Corp has admitted systematically covering up customer complaints for more than 20 years, has put company president Katsuhiko Kawasoe under enormous pressure to resign.

Mitsubishi Motors said in a statement on Monday it was in talks with DaimlerChrysler about big changes to its organisation.

"We are talking about major changes to our organisation across all areas of management including quality control and about DaimlerChrysler's cooperation with our company," it said.

Although DaimlerChrysler's 34 per cent stake already gives it power over boardroom decisions, a fourth board seat and the likely departure of Kawasoe, who had insisted the automaker would be run independently, should give it much more say.

The NHK report was unclear on whether Mitsubishi will issue new shares or if DaimlerChrysler is renegotiating terms to allow it to buy a 40 per cent stake for the same 2.1 billion euros it had agreed to pay for 34 per cent.

The offer was worth 450 yen per share. Mitsubishi Motors shares ended up nine yen or 2.65 per cent at 349 yen ($3.30) in Tokyo on Monday, but are still down 26 per cent in value since the scandal surfaced in mid-July.

Worries that the scandal will hurt sales in Japan and the United States cloud the stock. Credit rating agency Standard & Poor's also said on Monday it believed the automaker's credit quality would be hurt.

Mitsubishi group companies, which are also major shareholders in the Japanese automaker, will not oppose any move by DaimlerChrysler to boost its holding, Minoru Makihara, chairman of trading company Mitsubishi Corp and the de facto "don" of the Mitsubishi group told a media luncheon.

Pressure from Mitsubishi group firms -- eager to protect their common brand name -- is said to be a major reason behind Kawasoe's expected resignation, but Makihara said there was no consensus within the group on whether Kawasoe should resign.

Mitsubishi group companies' combined holding in Mitsubishi Motors was due to fall to 33 per cent from 48 per cent with DaimlerChrysler's transfer of funds for its 34 per cent stake.

Makihara, who met with the DaimlerChrysler board members Eckhard Cordes and Manfred Bischoff in Tokyo on Friday, also said he did not expect DaimlerChrysler to send in an executive to take the helm of the automaker.

Some Japanese media had reported that Mitsubishi Motors would request such a move. But this would give DaimlerChrysler effective control of the automaker and require it consolidate Mitsubishi's 1.47 trillion yen ($13.90 billion) in debt on its balance sheet.

Instead, executive vice president Takashi Sonobe, 59, currently in charge of alliance matters and who has in the past been in charge of the company's restructuring efforts, is widely expected to assume the post.

Mitsubishi Corp's Makihara also said talks between the two automakers might end as early as the end of this week, and would do so by the end of next week at the latest.

While some analysts have fretted that Kawasoe's resignation would usher in a period of turmoil for the automaker, others say more management control for DaimlerChrysler was likely to inject fresh life into Japan's fourth-largest automaker.

"Broadly speaking, it's positive," said Stephen Usher, autoanalyst at Jardine Fleming Securities. "It's been a rough two years for the company and one can't exactly argue that new blood will be bad for it."

The question of more control for DaimlerChrysler, however, leaves unresolved questions over Mitsubishi's contract with Sweden's AB Volvo to work together on trucks.

Mitsubishi's truck unit is the healthiest part of its business. The pact with Volvo, signed before the alliance with DaimlerChrysler, which is also keen to develop its truck business in Asia, has been seen as a major source of frustration for the German-American automaker.

But Volvo said on Monday it did not believe its deal would be affected. "We have full confidence in the deal we have with Mitsubishi," Volvo spokesman Mats Edenborg said.

Mitsubishi, which has also admitted to secretly repairing vehicles, has recalled 620,000 vehicles and offered to check another 200,000 in the wake of the scandal.

Police searched the company's offices on Sunday for the second time in two weeks in a move which could lead to criminal charges against the automaker, and the Transport Ministry is expected to announce penalties against Mitsubishi this week.