Phoenix lines up 40% of Mitsubishi Motors

Japanese private equity firm Phoenix Capital may acquire as much as 40 percent of ailing carmaker Mitsubishi Motors.

Phoenix Capital, the Japanese private equity firm, has agreed to help bail out struggling car manufacturer Mitsubishi Motors. The deal could see Phoenix buy as much as 40 percent of the firm.

Although the precise terms of the deal have not yet been revealed, the 40 percent figure was referred to in a statement issued by Mitsubishi Motors CFO Kelichiro Hashimoto. To achieve that, Phoenix would have to buy Y100 billion ($886 million) of shares at a price of around Y100 per share.

Such a deal would see DaimlerChrysler deposed as Mitsubishi Motors’ largest shareholder. In 2000, DaimlerChrysler paid more than four times the price per share Phoenix is understood to be offering to buy a 37 percent stake, which will be diluted to a 22 percent holding under the terms of the proposed deal.

The need for a refinancing package was precipitated by DaimlerChrysler’s refusal to contribute $3 billion to a more ambitious rescue plan last month. The plan involving Phoenix, which was put together in just five weeks, will see cuts in jobs and production and a planned return to operating profits in two years. However, some analysts predict that the company is being prepared for a merger with another Asian auto manufacturer.

The Phoenix commitment to buy shares is part of an overall Y450 billion equity package to halt the decline of the company, which posted a Y215 billion net loss in the 2004 fiscal year following a slump in demand in the US, the firm’s largest overseas market. The package also includes the Y270 billion purchase of Mitsubishi Motors’ preference shares by financial and industrial group members, a Y70 billion investment by JP Morgan Chase & Co and a Y10 billion commitment from China Motor Corp, the Taiwanese auto assembler.

A source at Phoenix Capital told The Deal that it had not yet decided to buy Y100 billion of shares, committing only to stock worth Y70 billion so far. He added that the share price and the exact number of shares to be acquired by Phoenix would be decided before a general shareholders meeting on June 29.

Phoenix Capital was set up three years ago by two former Bank of Tokyo-Mitsubishi executives and manages three funds that invest in the restructuring of distressed companies. The firm was involved in the restructuring of Tokyo Construction and earlier this month bought half of Sakuraya Co, a discount retailer. Analysts speculate that Phoenix may need to raise a new fund to purchase the Mitsubishi Motors shares. Its previous funds have received most of their backing from Japanese banks including Bank of Tokyo-Mitsubishi and Sumitomo Mitsui Banking Corp.     

The involvement of Phoenix shows that domestic as well as overseas private equity firms are capable of playing a role in the development of the Japanese buyout market, which is now under the spotlight as never before. In February 2004, Ripplewood Holdings, the US-based investor, unveiled massive profits from the IPO of Japanese bank Shinsei.