Peugeot, Europe’s second-biggest carmaker, alerted shareholders to the
discussions on Thursday. Mitsubishi confirmed the two companies were in
talks.

Officials at both companies cautioned that a capital tie-up was only one of
several possibilities under discussion. Others include developing shared
vehicle platforms or cooperating more closely in parts procurement or sales.

Shares Mitsubishi
Even so, the news lifted shares in loss-making Mitsubishi by as much as 23 per
cent in trading on the Tokyo Stock Exchange. The shares ended the day up 13
per cent at Y135.

Japan’s Nikkei financial daily said Peugeot was weighing an investment in
Mitsubishi of between Y200bn ($2.3bn) and Y300bn. That would leave the
French group with an ownership stake 30 per cent or more.

The two companies have existing joint ventures: They are building a new plant
together in Russia, where they will begin producing cars and sport utility
vehicles in 2011. Mitsubishi also makes the Peugeot 4007 and Citroën C
crossover vehicles in Japan. Peugeot will also start production of an
electric minicar in Europe next year based on Mitsubishi’s recently launched
i MiEV.

Job cuts in France
The talks come as Philippe Varin, who became Peugeot’s chief executive in
June, announced last month that his company would raise sales and cut costs
through job cuts in France, the roll-out of new models and steady expansion
in emerging markets.

Benefiting from a rebound in car sales, Peugeot earlier raised its full-year
outlook. While its short-term prospects are improving, Peugeot still faces
the long-term challenges of diversifying out of a mature European market and
catching up with leaner overseas competitors.

Mitsubishi is forecasting a return to profit in the financial year to March
2010, having returned to relative health after years combating debt, a major
defect scandal and a disastrous US sales-financing campaign. Its last
strategic foreign shareholder, DaimlerChrysler, in 2004 refused to bail out
the company when it was facing bankruptcy and later sold its 37 per cent
stake.

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