Nissan will have to try and restore Mitsubishi's image

Nissan Motor may have to burden itself with restoring Mitsubishi Motors' reputation now it is acquiring a one-third stake in the scandal-hit automaker, said analysts.

The two signed a basic agreement on Thursday, under which Nissan will purchase 506.6 million newly-issued Mitsubishi shares for $2.2 billion and become its largest shareholder.

The deal is still subject to the signing of a definitive agreement, as well as shareholders' and regulators' approval, but it is expected to be completed by the end of the year.

According to the agreement, Mitsubishi will propose Nissan nominees as board directors in proportion to Nissan's voting rights, including a Nissan nominee to become chairman of the board.

"This is a breakthrough transaction and a win-win for both Nissan and Mitsubishi Motors," said Carlos Ghosn, president and CEO of Nissan. "We will support MMC as they address their challenges and welcome them as the newest member of our enlarged Alliance family."

Mitsubishi's market value has nosedived since April 20, when it admitted cheating on the fuel economy data of four models sold in Japan, including two made for Nissan.

There was some speculation that the scandal was a plot by Nissan, after it emerged that Nissan did its own mileage tests on the two models and raised questions.

But analysts believe that is unlikely.

"It is hard to tell if the deal is good or bad for Nissan, so I don't agree that Nissan set a trap to buy Mitsubishi," said Zhang Zhiyong, a Beijing-based auto analyst.

On the contrary, he said, there was a good chance that it was Mitsubishi that approached Nissan for its help as the two have been in partnership for five years.

Osamu Masuko, chairman of the board and chief executive of Mitsubishi, said: "This agreement will create long term value needed for our two companies to progress towards the future."

Other shareholders, including Mitsubishi Heavy Industries, Mitsubishi Corporation and The Bank of Tokyo - Mitsubishi UFJ, have agreed to support the deal.

Yale Zhang, managing director of consultancy Automotive Foresight, said the move will further enhance Nissan's competitive edge in SUVs and four-wheel drive technology.

The downside is that Nissan has to help repair Mitsubishi's tarnished reputation, said Zhang, who had suggested before the Nissan deal surfaced that Chinese automakers purchase Mitsubishi.

"But Ghosn has long been known as a trouble shooter. He helped save Nissan from a mess."

Zhang Zhiyong said both Nissan and Mitsubishi should be careful as the fuel economy scandal was not the first time Mitsubishi had been caught lying. In the early 2000s, it was embroiled in a scandal involving a cover-up of defects such as failing brakes and faulty clutches.

"Money alone will not solve the problem if customers no longer trust you. Trust is the very basis of business," he said.

Mitsubishi had a partnership with Daimler Chrysler AG in 2000, which failed to reverse the Japanese brand's debts and lagging sales. The collaboration ended five years later.