TOKYO - Nissan Motor Co is in talks with its Japanese rival Honda Motor Co to merge, in a deal that would help the ailing company survive, while also creating the world’s third-largest automaker with a better chance of withstanding the industry’s challenges.
One source told Reuters that the two automakers are looking at setting up a holding company, in the clearest sign yet of reorganisation in Japan’s auto industry in response to the immense challenges posed by Tesla and Chinese rivals.
The discussions, first reported by the Nikkei newspaper, would allow the manufacturers to cooperate more closely on technology and help Japan’s second- and third-ranked automakers to create a more formidable domestic rival to Toyota.
In a reflection of Nissan’s vulnerability, discussions between the two appear to have accelerated after Hon Hai Precision Industry Co, the Taiwan-based iPhone maker better known as Foxconn, approached Nissan about taking a stake, a person familiar with the matter said. Foxconn has been investing heavily in factories to build electric vehicles.
Nissan shares jumped 24%, the most ever, while Honda’s stock slipped 3% on Wednesday in response to the news.
Honda’s market capitalisation is about $44 billion, while Nissan’s is about $10 billion after the price surge on Wednesday, meaning a full merger would be bigger than the $52-billion deal between Fiat Chrysler and PSA in 2021 to create Stellantis.
Nissan’s troubles exploded into the headlines in early November, when the company slashed its profit forecast and said it would have to cull 9,000 jobs globally, including about 1,000 in Thailand. It also announced a 20% cut to global output as consumers turn their backs on its lacklustre lineup, leaving Nissan models gathering dust at dealerships.
Since then, various entities have circled the troubled carmaker, with activist investors building up positions in its stock. Even though it makes marginally more cars, Honda’s market value is more than quadruple that of Nissan, giving it the upper hand in merger talks which may have to cover tricky ground like the prospect of layoffs in Japan.
Honda and Nissan have increased ties in recent months as they wrestle with the changing electric vehicle landscape. As well as heavy competition, automakers also face stalling demand in Europe and the US, intensifying the pressures on them.
Honda and Nissan on Tuesday issued identical statements saying no merger had been announced by either company. (Story continues below)
The Honda e:NS2 electric vehicle (EV)is displayed at the Auto Shanghai show in China in April 2023. (Photo: Reuters)
Renault open to a deal
The French automaker Renault will also necessarily have a say in any deal, considering it owns 36% of Nissan — a holdover from a longstanding alliance between it, Nissan and Mitsubishi Motors Corp.
Renault is open to Nissan pursuing merger talks with Honda as the French automaker seeks way to insulate itself from the crisis plaguing its partner, according to people familiar with the situation.
It’s unclear whether Nissan is also in talks with Foxconn or already rebuffed its overture.
A spokesperson for Nissan declined to comment. A representative for Foxconn wasn’t immediately available for comment. Honda Executive vice-president Shinji Aoyama said the carmaker is considering several options that may also involve a capital tie-up or the establishment of a holding company.
Options being considered the creation of a new holding company under which the combined businesses of Honda and Nissan would operate, a person familiar with the talks said. The transaction could also be expanded to include Mitsubishi Motors, which already has capital ties with Nissan, the person said.
An announcement by Honda and Nissan could happen as soon as on Dec 23, TBS reported on Wednesday. The duo plan to sign a memorandum of understanding to discuss shared equity stakes in a new holding company, the Nikkei reported earlier.
Vulnerable to foreigners
The Nikkei suggested that Foxconn’s interest in Nissan accelerated the Honda-merger efforts out of fears that the Japanese company may be vulnerable to a takeover by the Taiwanese firm.
A similar dynamic is playing out with one of Japan’s largest consumer brands — Seven & i Holdings Co. Its founding family is leading a consortium to take the company private in order to fend off a buyout proposal from Canada’s Alimentation Couche-Tard Inc.
A merger between Honda and Nissan would effectively consolidate the Japanese auto industry into two main camps: One controlled by Honda, Nissan and Mitsubishi and another consisting of Toyota Motor group companies.
Nissan and Honda are facing challenges globally but especially in China, where they’re both suffering at the hands of wildly popular local brands like BYD, as well as the US brand Tesla. The shift towards electrification, which is happening at varying speeds in different markets, is also disrupting manufacturing and business models that have been in place for decades.
Honda, Nissan and Mitsubishi combined sold about 4 million vehicles globally in the first six months of the year, well shy of the 5.2 million that Toyota sold on its own.
Combining forces would allow the two companies to fend off Toyota, the world’s largest automaker, at home and abroad. Toyota has taken stakes in Subaru, Suzuki and Mazda, creating a powerhouse of brands backed by its top-notch credit rating.
“There are just too many Japanese carmakers, and mergers are becoming necessary to become more competitive, globally,” said Hiroki Ihara, an analyst at Tachibana Securities Co.
For Foxconn, taking a controlling stake in a Japanese firm wouldn’t be unprecedented. In 2016, it took a two-thirds stake in electronics maker Sharp Corp, handing it a number of benefits including a well-known consumer electronics brand, LCD display production capacities and intellectual property. It has been reducing that interest slowly over time but is still the top shareholder.
The Japanese business publication Diamond Online reported Foxconn’s proposal earlier on Wednesday.
For Nissan, one thing is for certain: it needs help to put it back on a stronger financial footing. Revenue growth has stalled, profit is dwindling, and a daunting debt load has led to speculation in the credit markets about its investment grade rating.