Nissan Motor is reportedly in talks with to acquire a one-third stake in Mitsubishi Motors for about JPY200bn ($1.8bn).
The talks are in preliminary stages and have not been finalised. The companies are discussing several matters including capital cooperation.
The news came out in the light of the fuel-efficiency scandal that Mitsubishi had admitted to recently.
Mitsubishi's confession to overstating fuel-economy has hit its share price to the extent that it wiped out $3bn off of its value.
At present, Mitsubishi could face $1bn in compensation payments to be made to its customers and to Nissan Motor for the false fuel-efficiency claims.
Mitsubishi manufactured some of Nissan's cars including DayZ and DayZ Roox.
Mitsubishi might have to issue new shares to Nissan for the buyout to take place.
If the talks are successful, Nissan Motor could become the largest stakeholder compared to Mitsubishi itself, which holds not more than 20% of the shares.
Reports also suggest that China-based BAIC Motor is also in talks to acquire a stake in Mitsubishi.
According to experts, the deal could provide a platform for Mitsubishi to expand in regions like North America, where Nissan has a better foothold.
On the other hand, Nissan has a weaker presence in southeast Asia and Mitsubishi has a strong presence. The deal could be beneficial for both the companies, in pursuing each other's markets.
