DaimlerChrysler might take over Mitsubishi Motors

April 9, 2002

BLOOMBERG NEWS is reporting that DaimlerChrysler AG said it might exercise an option to take control of Mitsubishi Motors Corp. as early as next year if the fourth-largest Japanese carmaker returns to profit and reduces debt.

DaimlerChrysler Chief Executive Officer Juergen Schrempp told Der Spiegel magazine in an interview the takeover might come "at the earliest" in 2003. Company spokesman Toni Melfi said the report was accurate. Mitsubishi Motors shares rose 9 percent to their highest level in nine months.

The German automaker bought 34 percent of the Japanese company in 2000 as well as the right for a takeover in three years. DaimlerChrysler since has increased its stake to 37 percent of the maker of Pajero sport-utility vehicles. Mitsubishi has said it probably broke even in the year ended March 31, after a record loss of 278 billion yen ($2.1 billion) the year earlier.

"We think things are still tough" at Mitsubishi, said Greg Melich, a Morgan Stanley analyst, who has an "equal weight" rating on DaimlerChrysler. "They could finance the purchase, but the real cost would be taking over Mitsubishi's debt."

The Japanese carmaker said last May group debt would rise to 1.35 trillion yen in the year ended last month from 1.33 trillion yen a year earlier.

Mitsubishi Motors sales in Japan have fallen every month since July 2000 compared with year-earlier levels after the company admitted covering up customer complaints for two decades. The automaker was forced to recall and repair 2 million vehicles.

Declining 'to speculate'

Mitsubishi Motors declined to comment on the possibility of DaimlerChrysler moving quickly to grab control. "It doesn't make sense to speculate further about the future," said Mitsubishi Motors spokesman Fumio Nishizaki. DaimlerChrysler's 37 percent now exceeds the combined stakes of Mitsubishi companies led by Mitsubishi Heavy Industries Ltd.

"We could take Mitsubishi over as soon as 2003," Schrempp told the magazine. "But Mitsubishi must first return to profit and cut its debt." Schrempp also said the takeover was "logically a long-term goal."

Mitsubishi Motors shares rose 34 yen to close at 412. More than 17.5 million shares changed hands, almost eight times the six-month daily average. DaimlerChrysler's U.S. shares fell $1.05, or 2.4 percent, to $43.65 in early afternoon trading.

"I don't think the market was expecting DaimlerChrysler to show its intention of taking over the company quite as quickly," said Akihide Kinugawa, who helps manage 20 billion yen in assets at Daido Life Investment Management Co. A takeover would make it "much easier" to cut costs as connections with the Mitsubishi group will be loosened, he said.

Shareholder criticism

Meanwhile, Schrempp may face a revolt from small shareholders at the carmaker's annual meeting Wednesday, the Wall Street Journal reported last week. Some shareholders will ask people at the meeting to vote against approval of the management board's performance, the paper said.

DaimlerChrysler in February lowered its earnings target for 2002 to "substantially more" than 2.6 billion euros ($2.3 billion) from an earlier goal of 5.5 billion to 6.5 billion euros. The company is trying to save money by sharing parts among its Chrysler, Mercedes-Benz and Freightliner units and affiliates Mitsubishi and Hyundai Motor Co. after a loss of 662 million euros last year.

Mitsubishi Motors last month named Chief Operating Officer Rolf Eckrodt to replace Takashi Sonobe as CEO on June 25. Eckrodt joined the Japanese company in October 2000 from DaimlerChrysler as the most senior executive sent to Tokyo. German automaker's

'Positive impact'

If DaimlerChrysler takes over Mitsubishi Motors "the quality of management would certainly improve and that would have a positive impact," said Nobuaki Murayama, who helps manage 60 billion yen at Cigna International Investment Advisors Co. Still, he won't buy shares in Mitsubishi Motors "until we could see how they planned to improve sales."

A takeover would give DaimlerChrysler increased access to Mitsubishi Motors' Asian truck operations, an area of weakness for its own lineup of small and midsize trucks, said Mashu Kato, an analyst at Nikko Asset Management Co.

"Transportation companies are switching to smaller trucks to respond more quickly to customers' demands as many companies try to cut down inventories," Kato said.

Mitsubishi and the U.S.-based Chrysler unit already have agreed to build small and midsize cars together starting after 2003. Mitsubishi will engineer the chassis for the next models of the Dodge Neon and Mitsubishi Lancer small cars. Chrysler will lead engineering Dodge Neon on new versions of the Mitsubishi Galant and Dodge Stratus/Chrysler Sebring sedans.

The two companies will decide this year whether to engineer a small pickup together. While executives at both companies have said jointly building the pickup is unlikely, they continue explore areas for cooperation, Richard Schaum, Chrysler's chief engineer, has said. Mitsubishi, Chrysler and Hyundai also will decide this year whether to cooperate on four-cylinder engines, Schaum has said.

Mitsubishi trucks also may be sold at Freightliner dealerships to help the Japanese truckmaker compete with Isuzu Motors Ltd., Freightliner Chief Executive Officer Rainer Schmueckle said in an interview this year