Toyota currently owns 51.2 per cent of Daihatsu's shares, and will buy the remaining amount by August 2016. The deal is said to be worth around $3billion (£2.1billion), and the transaction will be done by Toyota exchanging 0.26 of its own shares for each Daihatsu share.
Toyota says that this move will help it to improve its small cars by having a unified strategy in the sengment, although the companies will keep their management structures and "engage in friendly competition".
Toyota will focus its development efforts on environment, safety, user experience, and comfort, while Daihatsu will focus on cost-saving and fuel efficiency for its small cars.
Toyota President Akio Toyoda said: "This is an opportunity for us both to stop feeling that we need to go it alone, and trust each other to take full advantage of our respective strengths. In other words, we can now focus on our core competencies. That, I believe, is the key to achieving and sustaining global competitiveness."
Daihatsu stopped selling cars in the UK in 2011. It will become a global brand after the takeover, with Toyota planning to develop small cars for emerging markets across the globe.
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