UPDATE 3-DaimlerChrysler to quit Mitsubishi Motors
Thu Apr 22, 2004 08:57 PM ET
By Alexander Huebner and Chang-Ran Kim

STUTTGART/TOKYO, April 23 (Reuters) - DaimlerChrysler AG (DCXGn.DE: Quote, Profile, Research) said it will pull out of Mitsubishi Motors, leaving the German-American company's bid to become a global car maker in disarray and throwing the future of the Japanese firm into doubt.

DaimlerChyrsler said on Thursday it would not participate in a rescue capital increase planned by Mitsubishi Motors Corp (7211.T: Quote, Profile, Research) because it could not agree an acceptable deal with other shareholders in the Mitsubishi group.

It also said it would not provide any further financial support to Mitsubishi, Japan's only unprofitable carmaker.

"This clearly means separation," a DaimlerChrysler spokesman said, adding that the 37 percent stake would be booked as discontinued business until a buyer could be found.

The decision came at an extraordinary meeting of the DaimlerChrysler supervisory and management boards on Thursday and just two weeks after Chief Executive Juergen Schrempp defended his global strategy in front of angry shareholders.

Mitsubishi, Japan's fourth-largest carmaker, had been widely expected to seek shareholder approval on April 30 for a 700 billion yen ($6.39 billion) bail-out.

Sources and media had said that more than half of that would come from DaimlerChrysler, while Mitsubishi Corp (8058.T: Quote, Profile, Research) , Mitsubishi Heavy Industries Ltd (7011.T: Quote, Profile, Research) , Bank of Tokyo-Mitsubishi (8306.T: Quote, Profile, Research) and other Mitsubishi group firms were expected to provide more than 100 billion yen.

Mitsubishi Motors said it was evaluating the situation and would make further announcements later.

However, Japan's Kyodo news agency quoted a top Mitsubishi group official as saying the group would continue to support Mitsubishi Motors even without the help of DaimlerChrysler.

"The move will leave Mitsubishi Motors with no choice but to shrink their business operations," said Hajime Yagi, general manager at Meiji Dresdner Asset Management in Tokyo.

The Tokyo Stock Exchange suspended trading in Mitsubishi Motors' shares after the news.

The euro hit a one-month high against the yen in what dealers said could signal a dumping of the Japanese currency as worries about Mitsubishi Motors' fate surfaced.

Reeling from losses on easy-term car loans in the United States, the maker of the Pajero sport utility vehicle is expecting a net loss of 72 billion yen for the 12 months to March 31. It had a profit of 37.36 billion yen the previous year.

Mitsubishi Motors' net automotive debt stood at around 726 billion yen six months ago, while total interest-bearing debt was 1.141 trillion yen.

"This could be the end for Mitsubishi if nobody else injects fresh capital," said one industry source.

DaimlerChrysler bought the stake in Mitsubishi over three years ago with a view to expanding in Asia, and the decision to cut its losses will intensify pressure on Schrempp, who faced calls to resign at the annual shareholder meeting on April 7.

David Healy, an auto industry analyst with U.S-based Burnham Securities, said that in "pulling the plug" on Mitsubishi it looked as if group board members had "finally rebelled against Schrempp's pouring money down that financial black hole."

Schrempp, who has presided over the loss of some 37 billion euros in market capitalisation since Daimler merged with Chrysler in 1998, will provide further details of the strategic U-turn in a teleconference at around 0900 GMT on Friday.

Unwinding the Mitsubishi investment will also have significant repercussions for Chrysler, the group's other problem child. Chrysler and Mitsubishi have established close production ties in a bid to cut costs.

The major unanswered question, Burnham's Healy said, was whether DaimlerChrysler had made alternate plans for new cars that Chrysler and Mitsubish were due to develop jointly.

"It really depends on whether Mitsubishi Motors survives in its present form without the financial backing of its largest shareholder. The Chrysler Group and Mitsubishi have been co-developing new platforms and that's a very important part of the small and intermediate passenger car programme for Chrysler."

Chrysler spokesmen were not available for comment.

Shares in Mitsubishi Heavy, which owns 14.8 percent of Mitsubishi Motors, were down four percent in early morning trade. Mitsubishi Corp was down 4.8 percent and Mitsubishi Tokyo Financial Group was down 0.98 percent.

Tokyo's main Nikkei average was up 0.77 percent.

(Additional reporting by David Crossland in Berlin, Tom Brown in Detroit) ($1=.8424 Euro)

($1=109.58 Yen)