Nissan Motor has agreed to take a 34% stake in Mitsubishi Motors, effectively taking control with a $2.2 billion move that bails out its smaller, scandal-hit rival.
The deal is a lifeline for Mitsubishi Motors, which is mired in its third scandal in two decades, but should also be a boost for Nissan.
Japan's second biggest two car maker has struggled to make inroads into Asia outside China, in countries like Thailand and the Philippines, where Mitsubishi's models are popular.
Mitsubishi and Nissan already co-operate on development and manufacturing with a partnership dating back to 2011, but that deal does not currently involve any cross-shareholding.
Under today's deal, which both companies said will help Mitsubishi "regain trust", Mitsubishi Motors will issue new shares to Nissan at a 5.3% discount to yesterday's close, raising 237.4 billion yen ($2.18 billion).
That will hand Nissan just over a third of the group - enough to wield control, under Japanese shareholding rules.
Nissan's CEO Carlos Ghosn said the two would now share and jointly develop technology, and could realise "billions" in synergies by coordinating purchasing, plant utilisation and cooperating in growth markets.
"We believe this will be a win-win situation. We believe we can help and support and grow together, better than if Mitsubishi was doing this on its own," he told reporters at a joint press conference in Japan.
Ghosn said Nissan will be able to nominate a third of Mitsubishi Motors' board, adding he believed that would also be led by a Nissan executive.
Mitsubishi admitted last month it overstated the fuel economy of at least four of its models - mini cars sold in Japan, including two sold under Nissan's badge.
That has badly hit Mitsubishi, wiping $3 billion off its value and bruising a brand already losing market share, as investors fretted over potential compensation costs.
Ghosn said he had been "reassured" by Mitsubishi Motors' CEO Osamu Masuko over the size and scope of the fuel economy troubles, which Masuko said had accelerated discussions.
Mitsubishi Motors shares are down around 45% since it admitted misconduct over mileage on April 20.
Nissan's CEO Carlos Ghosn said the two would now share and jointly develop technology, and could realise "billions" in synergies by coordinating purchasing, plant utilisation and cooperating in growth markets.
"We believe this will be a win-win situation. We believe we can help and support and grow together, better than if Mitsubishi was doing this on its own," he told reporters at a joint press conference in Japan.
Ghosn said Nissan will be able to nominate a third of Mitsubishi Motors' board, adding he believed that would also be led by a Nissan executive.
Mitsubishi admitted last month it overstated the fuel economy of at least four of its models - mini cars sold in Japan, including two sold under Nissan's badge.
That has badly hit Mitsubishi, wiping $3 billion off its value and bruising a brand already losing market share, as investors fretted over potential compensation costs.
Ghosn said he had been "reassured" by Mitsubishi Motors' CEO Osamu Masuko over the size and scope of the fuel economy troubles, which Masuko said had accelerated discussions.
Mitsubishi Motors shares are down around 45% since it admitted misconduct over mileage on April 20.
Today's deal will see Nissan gain a leg up in Japan's small car market - where it is dwarfed by Suzuki and Toyota's Daihatsu - and in key emerging economies. Asia excluding China accounted for about 7% of its global retail sales in April-December.
Mitsubishi has strong brand recognition in the region, while Nissan has been less successful at establishing a presence.
But it will also face the much tougher task of ensuring a turnaround at Mitsubishi, without full control.
An industry banker familiar with the deal said Mitsubishi Motors was now likely to reshuffle its top management, but dampened expectations of a full takeover. Sister companies in the sprawling Mitsubishi family are unlikely to sell, he said.
Mitsubishi Heavy Industries, Mitsubishi Corp and the Bank of Tokyo-Mitsubishi, together with subsidiaries held roughly a 34% stake in the car maker before the deal. That is now diluted to around 22%.
Group companies bailed out Mitsubishi Motors in 2004, but had not been expected to step in this time. Mitsubishi Corp reported its first ever loss this week.
For Mitsubishi, the need for a deal had grown. Mitsubishi Motors said earlier this week it had enough cash to weather the fuel-economy scandal - but also warned that non-compliant data may have been used to calculate the fuel economy for more of its cars than previously announced.
After Mitsubishi admitted last month to overstating the fuel economy of four of its mini-vehicle models, analysts estimate the car maker is facing up to $1 billion in compensation payments to its customers, along with payments to Nissan.
The deal would give Nissan a bigger stake in Mitsubishi than its 15% holding in alliance partner Renault. The French car maker holds a 43.4% stake in Nissan.
The three brands' combined annual global sales would be about 9.3 million vehicles, approaching the group sales of industry leaders Toyota and Volkswagen.
