Suzuki shares jump on news Volkswagen eyeing stake

An employee is reflected in a Suzuki Motor's car at a Suzuki Motor showroom in Tokyo June 2, 2009.

TOKYO (Reuters) - Shares of Suzuki Motor Corp rose nearly 4 percent a day after sources told Reuters that Volkswagen AG is planning to take a stake of up to 20 percent in the Japanese automaker.

Executives at Volkswagen, the world's third-largest automaker, have publicly said over the past half year that Suzuki would be an interesting target given its expertise in small cars -- a key segment to compete in emerging markets.

Responding to the report, Suzuki, Japan's fourth-largest automaker, said in a statement that there was no decision now and that it would make an announcement as soon as one was made. It did not elaborate on whether it was in any talks.

The Nikkei business daily quoted Suzuki Chairman and CEO Osamu Suzuki as admitting to the talks on Wednesday and saying that Suzuki was not in negotiations with anyone other than Volkswagen.

Suzuki shares were up 3.9 percent at 2,380 yen at the midday break. The benchmark Nikkei average was down 1.2 percent.

News of the advanced talks between Volkswagen and Suzuki comes days after PSA Peugeot Citroen and Mitsubishi Motors Corp said they were exploring deepening their ties, which have been limited to a project-based partnership so far.

Reports that the French carmaker could take a controlling stake in ailing Mitsubishi Motors have triggered the inevitable question of "who's next," as the industry faces fragile demand, chronic overcapacity and mounting pressure to join hands to tackle stricter environmental regulations.

The other Franco-Japanese alliance, between Renault SA and Nissan Motor Co, is stepping up its push to achieve bigger synergies after 10 years of partnership, considered one of the few success stories in the industry.

"This (Volkswagen-Suzuki negotiations) comes right after the Mitsubishi Motors deal and shows that foreign carmakers are coming to take stakes in Japanese firms, raising expectations of a reorganization in the autos sector," said Noritsugu Hirakawa, a strategist at Okasan Securities.

The bankruptcy of Chrysler this year was twinned with a link-up with Italy's Fiat SpA, while Chinese automakers are looking to buy into brands on sale from GM and Ford Motor Co.

Still, Suzuki's coming to the negotiation table with Volkswagen comes as a surprise after its CEO had categorically denied any talks as recently as November.

Analysts said the move could benefit Suzuki by giving it cash and a partner to develop clean-car technology, where it lags, while giving Volkswagen a minicar platform, as well as a foothold in emerging markets such as India and Southeast Asia.

"It is probably a good move for both parties," said Koji Endo, an autos analyst at Advanced Research Japan.

In contrast to a potential pair-up between PSA and Mitsubishi Motors, which many regard as a union of the weak, Volkswagen and Suzuki are both in the winning camp thanks to their big exposure to the fast-growing markets of China and India, respectively.

Japan's Mazda Motor Corp has also come under some scrutiny given its diminished equity ties with Ford, whose stake has dropped to 11 percent from one-third.

But Mazda is fresh from raising about $1 billion in a share sale to fund the development of hybrid and other technologies, indicating that it could maintain the status quo.

Analysts are particularly upbeat about a new generation of fuel-efficient engines and transmission to be rolled out from 2011 as a cost-effective technology that could contribute immediately to Mazda's bottom line.

(Additional reporting by Elaine Lies; Editing by Chris Gallagher)