Nissan and Honda are in exploratory talks about a merger of the two carmakers that would create a $52bn Japanese behemoth, said people briefed on the matter.
The two companies are studying a way to combine that would help them better compete at a time when traditional carmakers are grappling with fast-growing Chinese electric-vehicle manufacturers, and slower than expected consumer demand for EVs.
Shares in Nissan surged more than 22 per cent in early trading in Tokyo on Wednesday, on expectations that a deal would put a healthy premium on the company. Honda’s stock dropped as much as 3 per cent.
The talks are at an early stage, and there are concerns about a possible political backlash in Japan because a merger of two of the country’s most storied car brands could result in significant job cuts, one of the people with knowledge of the discussions said.
Nissan and Honda announced in March they would team up to develop EVs and have deepened their talks amid uncertainty about what Donald Trump’s return as US president will mean for the car industry.
Before the talks were reported, shares in Nissan, which has a cross-shareholding structure with Renault, had fallen 40 per cent this year, cutting its market capitalisation to $8.2 billion. Honda has a market value of $44 billion.
The combined company would rank as the world’s third-largest carmaker behind Toyota and Volkswagen based on last year’s sales volumes, giving it the scale to make investments to compete with Tesla and China’s BYD.
Nissan in November unveiled an emergency turnaround plan that included 9,000 job losses, saying it would cut global production capacity by 20 per cent. The company downgraded its profit guidance for the second time this year after falling to a loss in the July to September quarter.
Nissan has been searching for an anchor investor for several months, and the Financial Times last month reported “all options” were being considered, including a merger with Honda.
The merger talks between Nissan and Honda were first reported by Nikkei. Nissan on Tuesday evening said: “The content of the [Nikkei] report is not something that has been announced by either company.”
It added: “As announced in March this year, Honda and Nissan are exploring various possibilities for future collaboration, leveraging each other’s strengths. If there are any updates, we will inform our stakeholders at the appropriate time.”
Honda similarly said it and Nissan were “exploring various possibilities for future collaboration”.
Renault declined to comment.
Fund managers in Tokyo said they would be highly sceptical of any merger, because of the overlap between Nissan and Honda’s businesses and the likelihood of big lay-offs and writedowns.
“It is hard to imagine Honda would do this without some sort of subsidy or guarantee from the Japanese government, because it’s hard to identify which bits of Nissan Honda would really want,” said the head of one large, long-only fund.
In August, Honda and Nissan said they would roll out an EV by the end of the decade, as the two companies agreed to jointly develop software.
A merger between Nissan and Honda would give the enlarged company a major US manufacturing footprint, helping both brands to potentially minimise the impact of tariffs that Trump is proposing on imports from Mexico. Nissan has significant manufacturing operations in Mexico.
The auto industry also expects Trump, a long-standing critic of EVs, may slow adoption of them in the US, possibly by watering down emissions rules.
The combination of Nissan’s low market value and its significant manufacturing capacity in the US has made the company an increasingly attractive target for non-Japanese buyers, said M&A bankers in Tokyo.
“There are certainly companies looking at Nissan as a possible way of buying a US manufacturing presence as a way around any future tariffs,” said one banker who has advised several Japanese carmakers.
“The price is low enough to make that something worth doing, and so it’s not surprising Nissan would have been looking for a domestic merger as a defence against that.”
A tie-up would have consequences for Mitsubishi Motors, which Nissan has a near 27 per cent stake in, and could become part of the enlarged company. The three brands would have combined annual production of about 8mn vehicles.
Nissan is planning a series of product launches to tackle its deteriorating financial performance after it failed to counter a slowdown in global EV sales with a strong hybrid offering: cars that combine battery power with a traditional combustion engine. Sales of these vehicles have helped Toyota.
Nissan has recently been targeted by activist investors including Effissimo Capital Management, a Singapore-based hedge fund known for high-profile campaigns against some of the biggest names in Japan, including Toshiba.
If talks on a merger persist between Nissan and Honda, the two companies would need to work out how to reconcile their starkly different corporate cultures.
The Japanese government floated the idea of merging Nissan and Honda in 2020.
Officials in Tokyo fear domestic carmakers cannot compete with Chinese rivals on EVs and software as stand-alone companies, despite concerns about the impact of a merger on employment.
The FT last month reported Renault would be open to selling a portion of its shares in Nissan to Honda as part of a restructuring of its 25-year-old alliance.
One person close to Renault said a stronger relationship between Nissan and Honda could “only be positive” for the French group.
Renault reorganised its alliance with Nissan last year, with the French group cutting its shareholding in the Japanese company to just under 36 per cent.
Nissan has a 15 per cent voting stake in Renault. – Copyright The Financial Times Limited 2024
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