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

Following an MMC share issue, Nissan will take a 34% equity stake in MMC for JPY237bn. 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 utilisation and growth markets.
 
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 maximising 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 506.6m newly-issued MMC shares at a price of JPY468.52 per share. The price reflects the volume weighted average price over the period between 21 April, 2016 and including 11 May, 2016. Nissan will become the largest shareholder of MMC on closing.

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.

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.

Mitsubishi Motors has been struggling with yet another major product quality cover-up scandal in recent weeks, this time because it has overstated the fuel-efficiency of its vehicles for over two decades. Many of those were built on an OEM basis for Nissan.

The company’s share price has fallen by around 50% since the scandal first came to light last month and orders for new vehicles have dropped sharply since it admitted falsifying fuel-efficiency tests.