Is It A Nissan Or Mitsu Tranny?

TOKYO, Oct 4 Reuters reported that Japan's Nissan Motor Co Ltd said on Thursday it planned to intergrate its Jatco transmission unit with Mitsubishi Motors Corp's transmission division and was considering an IPO for the new company. Nissan, Mitsubishi and the unlisted transmission subsidiary, Jatco TransTechnology Ltd, said at a joint news conference they had signed an agreement to integrate Mitsubishi's and Jatco's transmission businesses by mid-2002.

Nissan and Jatco, owned 99.7 percent by Nissan, said the integration would help Jatco widen its customer base, increase sales and achieve the economies of scale needed to become a supplier to automakers who manufacture transmissions in-house.

Jatco, a leading company in continuously variable transmission technology, which offers greater fuel efficiencies, said that the integrated company aimed to make four million transmissions annually within several years of the integration.

They went on to report that the agreement would enable Mitsubishi, currently embarking on a revamped revival plan, to slash costs by outsourcing its capital and labor-intensive transmission operations.

"This is a win-win situation for the three companies," Mitsubishi Senior Vice President Hiroshi Yajima said.

"It will enable us to move towards our turnaround goals and will make a major contribution to Jatco's growth strategy."

The agreement calls for Mitsubishi to spin off its CVT (continuously variable transmission) and AT (automatic transmission) businesses into a separate legal entity and take a minority stake in Jatco after integrating the businesses by the middle of next year.

While the stake has not been finalised, Mitsubishi's Yajima said he envisaged it being around 20 percent.

Nissan Vice President of Finance Kiyoto Shinohara said Japan's second-largest automaker was also considering an IPO (initial public offering) down the road for the company if conditions were right.

"We are thinking that an IPO could be one possible future option for our hopes to develop the company," he said.

The news sent shares in Mitsubishi Motors, owned 37.3 percent by DaimlerChrysler AG, up as much as 14 percent before they finished up 8.6 percent at 240 yen.

Shares in Nissan, owned 36.8 percent by French automaker Renault , ended up 5.37 percent at 530 yen, outperforming a near three percent rise in the Nikkei <.N225>.

Mitsubishi is following in the footsteps of Nissan with the move to spin off, outsource or sell divisions for much-needed cash.

Nissan is already well into its own revival plan that has seen it rapidly slash costs through the outsourcing of various operations under President Carlos Ghosn.

Analysts said the tie-up was a wise move for Mitsubishi in its restructuring efforts and had high praise for the benefits Nissan could reap from an eventual Jatco IPO.

"For Nissan, this (possible IPO) is more than the best of both worlds, it's the best of all worlds," said Chris Redl, auto analyst at UBS Warburg.

"They can get the cash for the proceeds of the IPO, which is great, and they will also be able to hold on to this core technology which they've spent so much time and money developing," said Redl, who estimated Nissan could use the IPO cash to slash debts by as much as 10 percent.

"And by having it spun off...other carmakers would be more inclined to do business with JTT (Jatco)."

Currently, Nissan accounts for around 75 percent of Jatco's business, but Jatco believes the greater economies of scale from its tie-up with Mitsubishi will help it cut that figure to around 60 percent.