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MarketScreener Homepage  >  Equities  >  Tokyo  >  Nissan Motor Co Ltd    7201   JP3672400003

NISSAN MOTOR CO LTD

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Nissan Motor : Middle East Company Sues Nissan Over Distribution Partnership

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06/18/2019 | 03:30pm EDT

By Nick Kostov and Sean McLain

A Middle East company owned by a friend of Carlos Ghosn is seeking $386 million in damages from Nissan Motor Co. over a distribution agreement, in further fallout from the November arrest of the Japanese auto maker's then chairman.

The company, called Al Dahana, was created in 2008 to help jump-start sales of Nissan vehicles in the Persian Gulf region. In a lawsuit filed in May in Dubai, it says Nissan undercut the business of the distribution joint venture they had formed.

A Nissan spokesman said the auto maker doesn't comment on lawsuits.

Al Dahana is owned by Saudi Arabian billionaire Khaled Al Juffali and Lebanese businessman Nasser Watar. Mr. Juffali, the company's majority owner, is a longtime friend of Mr. Ghosn, while Mr, Watar is a more recent acquaintance, according to people familiar with their relationships. The connection between Mr. Juffali and the former Nissan chairman was cited by Japanese prosecutors in charging Mr. Ghosn with financial crimes during his tenure at the auto maker. Mr. Ghosn says he is innocent.

In October 2008, Al Dahana and Nissan formed a joint venture called Nissan Gulf. It was meant to obtain vehicles from a wholly owned Nissan subsidiary in the region and supply them to dealers in Saudi Arabia, Kuwait, Bahrain and Abu Dhabi, according to the lawsuit and Nissan's announcement at the time.

The suit alleges that Nissan soon violated the terms of the exclusive deal by letting its wholly owned subsidiary continue to supply vehicles directly to some regional dealers and doing so at a price lower than the joint venture offered. In 2012, Nissan Gulf lost its business in Abu Dhabi, the largest emirate in the United Arab Emirates, because dealers there decided to buy directly from Nissan's subsidiary instead of the joint venture, the suit says.

Even when the joint venture did distribute vehicles, it was deprived of its proper share of the profits, the suit says. Nissan was supposed to restrict itself to a maximum 3% operating margin on deliveries to dealers but took more, it says.

Al Dahana didn't sue in the past because it would have breached its contract with Nissan, according to the lawsuit.

Former employees of Nissan Gulf said it was supposed to provide the local knowledge needed to boost sales, but some dealers complained that all the joint venture did was add to the cost of the vehicles.

A person familiar with Nissan's business in the region said the Japanese auto maker had questioned for years whether Nissan Gulf was generating enough value to justify the added costs.

Nissan Gulf was audited as part of Nissan's global investigation into alleged wrongdoing by Mr. Ghosn, according to a person close to Al Dahana, Nissan's joint-venture partner. Nissan has said it is working with prosecutors who are building the criminal case against Mr. Ghosn.

The person close to Al Dahana said that while the joint venture added an extra layer to distribution in the region, it did its job in boosting overall Nissan sales in the region. "We performed," this person said.

The person familiar with Nissan's business said the auto maker plans to terminate the deal with Al Dahana next month.

After Mr. Ghosn was arrested in November and subsequently stripped of his Nissan posts, Al Dahana became concerned that its contract wouldn't be renewed, according to the suit. Al Dahana audited the joint venture's accounts and found invoices from Nissan suggesting that the Japanese company sometimes had profit margins of more than 20% on sales in the region, in violation of the agreement between Nissan and Nissan Gulf, the suit says.

Japanese prosecutors have zeroed in on what they say were improper ties between Mr. Ghosn, who was Nissan's chief executive at the time of the 2008 deal, and Mr. Juffali.

In criminal charges against Mr. Ghosn, they say he arranged for Nissan to pay $14.7 million to a Juffali-owned company after the Saudi businessman helped Mr. Ghosn with a personal financial problem involving potential losses on a derivative contract. In May, prosecutors sought to amend the indictment by alleging that a Juffali company sent $20 million in October 2008 to a brokerage account held by a company managing Mr. Ghosn's personal assets. Prosecutors didn't say what role the $20 million played.

Mr. Ghosn says he is innocent. He has said the Nissan payments to Mr. Juffali's company were for "critical services that substantially benefited Nissan," while Mr. Juffali has said the payments he received were for "legitimate business purposes."

--Rory Jones contributed to this article.

Write to Nick Kostov at Nick.Kostov@wsj.com and Sean McLain at sean.mclain@wsj.com

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P/E ratio 2021 8,42x
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