Nissan Motor Co and Mitsubishi Motors Corporation (MMC) have signed a basic agreement to form a far-reaching strategic alliance between the two Japanese automakers.

Following an MMC share issue, Nissan will take a 34 per cent equity stake in MMC for 237 billion yen ($2.18 billion).

The strategic alliance will extend an existing partnership between Nissan and MMC, 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, said a statement.

Carlos Ghosn, chief executive and president of Nissan, said: “This is a breakthrough transaction and a win-win for both Nissan and Mitsubishi Motors. It creates a dynamic new force in the automotive industry that will cooperate intensively, and generate sizeable synergies. We will be the largest shareholder of MMC, respecting their brand, their history and boosting their growth prospects. We will support MMC as they address their challenges and welcome them as the newest member of our enlarged Alliance family.”

Osamu Masuko, chairman of the board and chief executive of MMC, said: “Through its long history of successful partnerships Nissan Motor has developed a deep knowledge of maximizing the benefits from alliance partnerships. This agreement will create long term value needed for our two companies to progress towards the future. We will achieve long term value through deepening our strategic partnership including sharing resources such as development, as well as joint procurement.”

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, the statement said.

MMC and Nissan expect Mitsubishi Heavy Industries, Mitsubishi Corporation and The Bank of Tokyo – Mitsubishi UFJ to maintain a significant collective ownership stake in Mitsubishi Motors, and to support the strategic alliance.

The transaction is subject to the signing of a definitive Alliance Agreement, expected by the end of May, 2016, the signing of a shareholders agreement with the current Mitsubishi Group shareholders of MMC and regulatory approvals. It is expected to close by the end of the year, it said.

The decision by Nissan to acquire a strategic stake in MMC marks the latest expansion of its Alliance model, built around a 17-year cross shareholding arrangement with Renault. Nissan has also acquired stakes or signed partnerships with other automotive groups including Daimler, and AvtoVaz.

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, it said.

Reuters adds: Mitsubishi is weathering its third major scandal in under two decades after admitting it overstated the fuel economy of at least four of its models - mini cars sold in Japan, including two sold under Nissan's badge.

That admission has badly hit Mitsubishi, wiping $3 billion off its value and bruising a brand already losing market share.

"With little prospect of growth in the domestic car market, Nissan probably wants to get more involved in smaller vehicles given expectations of a surge in emerging markets and elsewhere," said Kiyoshi Yamanaka at T&D Asset Management.

"But taking a one-third stake feels a bit like a half-measure. The key will be how well Nissan is able to exert control over Mitsubishi Motors' governance and repair its damaged brand value." - TradeArabia News Service and Reuters