TOKYO (Thomson Financial) - Fuji Heavy Industries Ltd., which makes the Subaru brand of vehicles, said on Friday it had decided to sell 61 million treasury stocks that it owns to bigger rival Toyota Motor Corp. for 31.11 billion yen ($291.1 million), in order to enhance the capital and business partnership between the two companies.

The move came after Toyota completed preliminary hearings with the Fair Trade Commission and an agreement was reached on April 10.

On July 14 Fuji Heavy will sell its shares at 510 yen each, or at a 10 percent premium over the average closing price between December 11 and March 10.

The deal will increase Toyota's voting rights in Fuji Heavy to 16.16 percent from 9.50 percent at present.

Toyota, which has been competing closely with General Motors Corp. for the title of the world's largest carmaker, bought its existing stake in Fuji Heavy from GM in 2005.

But since forming the capital and business partnership, the two companies have so far seen slow progress in achieving tangible synergies.

Fuji Heavy currently makes Camry models for Toyota at its U.S. plant, and also sells Justy compact cars in Europe under an original equipment manufacturers (OEM) contract with Daihatsu Motor Co., another Toyota unit that makes mini cars.

Under the expanded alliance, Toyota and Fuji Heavy will jointly develop and market compact sports cars using Fuji's proprietary Boxer, or horizontally opposed engine, which is similar to Porsche AG's engine.

The two companies aim to release the new front-engine rear-drive sports car by the end of 2011 and make them at a new assembly line to be built at Fuji's Ota plant in Gunma prefecture.

Toyota will also supply its compact cars to Fuji under an OEM contract before the end of 2010.

Separately, Daihatsu will also supply its Coo mini vehicles to Fuji Heavy for sale in Japan under the OEM deal. Beginning from October this year, Fuji will procure some 6,000 Coo vehicles a year from Daihatsu.

The deal will also allow Fuji to stop making mini-cars and focus its resources on the non-mini car segment.

yasuhiko.seki@thomsonreuters.com - yas/ng

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