News that PSA Peugeot Citroën is considering a “strategic partnership” with Mitsubishi Motors Corporation prompts a sense of déjà vu. If past deals in the Japanese auto sector are any guide, the target will eventually print a load of new shares, improving its gearing but leaving existing investors looking askance at the new guy.
If Peugeot were really brave, it would push for a series of block trades to separate MMC from its keiretsu once and for all. In an unhappy tie-up earlier this decade, the former DaimlerChrysler, with 37 per cent, constantly rubbed up against Mitsubishi Corp, Mitsubishi Heavy and Mitsubishi UFJ, with a similar combined share. On Thursday, after the trio re-capitalised MMC in 2004-2005 and Daimler dumped its shares, they still have 34 per cent of the common stock. Mitsubishi Corp, with 13.99 per cent, might be a willing seller; ditto the bank, with 4.86 per cent of the common, and about half of the preferred shares (which add about $5bn to the $8.5bn market capitalisation). The stickler might be Mitsubishi Heavy, which has 15.17 per cent of the common stock and – as MMC’s ex-parent – the strongest emotional attachment.
MMC has a balance sheet only a (former) mother could love. Net debt to earnings before interest, tax, depreciation and amortisation was over 8 times in March. The profit and loss account is not much prettier. One notable bright spot is electric cars – in July it became the world’s first automaker to begin mass production.
Peugeot’s modus operandi is to seek limited alliances on specific projects, rather than capital tie-ups. But as MMC seems unlikely to start paying a coupon on its preferred shares this fiscal year, and as Corp has already vowed no more direct funding, now could be a good time for new chief executive Philippe Varin to place a big bet on a petrol-less future.
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