By Naomi Tajitsu and Maki Shiraki
TOKYO (Reuters) - Nissan Motor Co Ltd <7201.T> said on Thursday it had completed a deal to take a controlling stake in Mitsubishi Motors Corp, and would be retaining the embattled automaker's chief executive in a bid to help it recover from a mileage cheating scandal.
Japan's No. 2 automaker has agreed to make a 237 billion yen ($2.29 billion) investment to acquire 34 percent of Mitsubishi Motors <7211.T>, making it the single largest shareholder in its smaller peer and giving it enough of a stake to wield control under Japanese shareholding rules. The deal offers Mitsubishi a lifeline after the automaker earlier this year admitted to overstating the mileage on some of its cars, while Nissan is hoping to capitalize on Mitsubishi's strong presence in developing Asian countries to lift its lagging market share there.
Mitsubishi Motors becomes a member of the alliance between Nissan and French automaker Renault <RENA.PA>, resulting in combined annual vehicle sales of 10 million, making it among the top three automotive groups by sales volumes and enabling the three companies to leverage their scale to reduce costs.
Nissan and Mitsubishi Motors said their partnership would generate synergies in areas including purchasing and plant utilization, adding they would jointly develop automated driving technologies and plug-in hybrid vehicles.
Pending shareholder approval, Carlos Ghosn, chairman and CEO of both Nissan and Renault, will lead the board of Mitsubishi Motors, while Osamu Masuko will remain the company's president and CEO despite calls earlier this year by some shareholders for him to resign to take responsibility for falsifying the mileage on its vehicles.
Ghosn said keeping Masuko on was an "important condition" in proceeding with the partnership, adding all management decisions would be made by Masuko.
"One of the reasons that I so much wanted Mr. Masuko to stay as CEO was because I wanted the people at Mitsubishi to know that Mitsubishi will remain Mitsubishi. Mitsubishi will not become a subsidiary of Nissan," he told a joint briefing.
"This sends a strong message that it's not Nissan that's going to transform Mitsubishi, it's Mitsubishi that's going to transform Mitsubishi."
FROM SCANDAL TO RECOVERY
Nissan is dispatching some of its executives to Mitsubishi to improve its management system, nearly two decades after Ghosn executed a turnaround plan for Nissan which included plant closures and thousands of layoffs when Renault took a controlling stake in the then ailing automaker in 1999.
Masuko will share the top leadership position with current Nissan Chief Competitive Officer Hiroto Saikawa, while Mitsubishi Motors' chief operating officer will also come from Nissan.
Pooling resources and eliminating duplicate operations would result in estimated annual cost savings of 24 billion yen in 2017 for Nissan, the company said, rising to 60 billion yen in 2018. Mitsubishi said it expected annual savings of 25 billion yen.
The companies also plan to share technology and production platforms, while also streamlining parts procurement to keep costs down. Ghosn warned this may be "bad news" for Mitsubishi's "not so competitive suppliers".
Nissan stands to capitalize on Mitsubishi's strength in developing Asian countries, where Nissan has been struggling to increase its market share. Around one-third of Mitsubishi's global sales come from the rest of Asia - excluding Japan - with a focus on countries including Thailand and the Philippines.
"We're not happy with our performance in ASEAN (Association of Southeast Asian Nations) countries," Ghosn said. "I think the collaboration with Mitsubishi will help us in many areas to shore up our own level of competitiveness there."
Nissan first announced in May its intention to take a controlling stake in Mitsubishi after Mitsubishi admitted to falsifying the mileage of four minivehicle models, including two made for Nissan.
Mitsubishi Motors blamed poor communication, lax governance and internal pressure for its lack of compliance after it was found in August to have overstated the mileage of eight additional models.
As Nissan becomes the dominant stake holder in Mitsubishi Motors, Mitsubishi's group companies - trading house Mitsubishi Corp, Mitsubishi Heavy Industries Ltd <7011.T> and Bank of Tokyo-Mitsubishi UFJ Ltd [MTFGTU.UL] - will see their combined stake diluted to around 17 percent, from about 34 percent before the deal was announced.
(Reporting by Naomi Tajitsu and Maki Shiraki; Editing by Simon Cameron-Moore and Mark Potter)