Just to be able to ride out the slump that the auto industry has been reeling from, France’s PSA/Peugeot Citroen SA could buy a large stake in Japan’s Mitsubishi Motors Corp. as part of a plan to deepen ties.

Shares of Mitsubishi then closed 13.4% higher after the Nikkei business daily reported that PSA, Europe’s second-biggest carmaker, may take a 30%-50% stake in Mitsubishi Motors for up to 300 billion yen ($3.4 billion). Peugeot shares also went up by 0.4%. In an interview with LCI television, French Finance and Economy Minister Christine Lagarde said that since there is overcapacity in the car sector, consolidation may be necessary. Continued after the jump!

She calls the talks between Peugeot and Mitsubishi to be “a good thing.” A partnership could create a leader in electric vehicles. Mitsubishi even went as far as to say that a capital tie-up was possible.

However, there is still no word on how long the negotiations will last. The Nikkei reported that top management at Mitsubishi is prepared to accept a majority acquisition of the company by Peugeot if conditions were right.

CM-CIC analyst Guillaume Angue asserted that the alliance would make sense from an industrial viewpoint and it would allow Peugeot to solve its problems of size, but that it would come a bit early in the business cycle. In his estimation, Mitsubishi remained expensive with an enterprise value to sales ratio of 0.64 against 0.2 at Peugeot.

[via autonews - sub. required]

Tags: car news, mitsubishi news, psa peugeot citroen, psa peugeot citroen mitsubishi, psa peugeot citroen mitsubishi stake

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