JapanÔÇÖs Mitsubishi Motors is in talks with Peugeot Citro├½n over a capital tie-up that could see the French automaker take a significant stake in the Japanese company.
Peugeot Citroën, Europe's second-biggest automaker by sales, could buy a stake of 30 to 50 per cent in Mitsubishi Motors for up to $3.4 billion.
The deal could effectively put Mitsubishi under Peugeot's control, creating the world's sixth-largest automobile alliance.
Sales of shares in Mitsubishi, currently JapanÔÇÖs sixth-biggest automaker, jumped by almost 20 per cent on the news. A deal could help Mitsubishi improve its financial health and accelerate its business rehabilitation efforts.
In exchange, Peugeot would be able to tap Mitsubishi's expertise in electric vehicles and other environmental technology, as well as its business network in emerging markets.
Any deal would need the backing of Mitsubishi Corp. and Mitsubishi Heavy Industries Ltd., which have respective stakes of 14 per cent and 15.6 per cent in the Japanese automaker.
The two companies have already collaborated on the development of an electric car that will be manufactured by Peugeot and launched in Europe by the end of 2010. The new model will be based on Mitsubishi's i-MiEV, which was launched in Japan in June.
Mitsubishi is making 2,000 units of the i-MiEV in the current fiscal year to March 2010, with the aim of boosting production to 15,000 units by March 2012.
Mitsubishi also makes the Peugeot 4007 and Citroën C crossover vehicles in Japan.
The two companies have already agreed to set up an automotive factory in Russia to manufacture mid-sized sport utility vehicles, with production due to commence in early 2012.
Some years ago, Mitsubishi formed a capital tie-up with DaimlerChrysler AG, which held a 37.3 per cent stake in the Japanese company.
However, after refusing to bail out Mitsubishi in 2004 when it was facing bankruptcy, DaimlerChrysler sold its stake a year later, ending the tie-up.
Peugeot announced last month that it would raise sales and cut costs via job cuts in France, the roll-out of new models and expansion into emerging markets, with the result that its short-term prospects are now improving.
Meanwhile, Mitsubishi is forecasting a return to profit in the financial year to March 2010.
Peugeot sold 3.26 million vehicles last year, making it the eighth-ranked automaker in the world. Mitsubishi Motors was ranked 15th, with 1.19 million units.
Combined, the two companies had sales of roughly 4.45 million vehicles in 2008, placing them between Ford MotorÔÇÖs 5.4 million cars sold and Hyundai MotorÔÇÖs 4.2 million units.
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