http://www.reuters.com/financeNewsArticle.jhtml?type=bondsNews&storyID=4915794
UPDATE 3-DaimlerChrysler to quit Mitsubishi Motors
Thu Apr 22, 2004 08:57 PM ET
(Adds Mitsubishi trade suspension, details, changes dateline)
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.
EASY LOANS
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)