(Bloomberg) — Honda Motor Co. and Nissan Motor Co. took their first historic steps toward merging, in hopes of creating a juggernaut that can survive aggressive competition from China that’s roiling the industry.
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The two Japanese auto manufacturers signed a basic agreement for merger talks on Monday and held a joint media briefing in Tokyo. Honda also said it will buy back as much as ¥1.1 trillion yen ($7 billion) of its own shares.
A holding company will be created to house the new entity and should be listed by August 2026, the firms said, adding that Honda will be able to nominate a majority of the new company’s board of directors.
Mitsubishi Motors Corp., which is 24.5% owned by Nissan, also signed the memorandum of understanding and will likely be part of the group with a final decision on that expected by the end of January.
Such an alliance would give rise to one of the world’s largest carmakers, pitting the trio against Toyota Motor Corp. at home and Chinese automakers abroad, including BYD Co. and Geely Automobile Holdings Ltd. Toyota has stakes in Subaru Corp., Suzuki Motor Corp. and Mazda Motor Corp., creating a powerhouse of brands backed by its top-notch credit rating.
Yet while forecasting an operating profit of more than ¥1 trillion that would eventually climb to ¥3 trillion for the combined entity, Honda Chief Executive Officer Toshihiro Mibe did not address how the companies would combine their businesses to face pressing issues like shutting or streamlining factories.
“Both companies will continue as wholly owned subsidiaries of the joint holding company with their respective brands in place,” Mibe said. Honda will take the lead as the new company is being formed, he said, underscoring the company’s much stronger position versus Nissan, whose sales have slumped amid a lineup of cars that consumers no longer find exciting.
The holding company will include the brands of both Honda and Nissan, and fold in Honda’s large motorcycle unit.
Honda’s share buyback cancels a previously announced one of ¥100 billion and will start on Jan. 6 and run through most of 2025, according to Monday’s announcement. The company plans to repurchase as many as 1.1 billion shares, or almost 24% of its stock excluding treasury securities.
The large buyback is being launched now because such transactions face regulatory limits while merger talks are underway, the companies said.
Nissan Crisis
The question of whether the merger can actually help save Nissan looms over the effort.
It’s facing the starkest version of the existential threat all Japanese car companies are seeing amid the global automobile industry’s breakneck shift to battery-powered electric vehicles and hybrid drivetrains, and away from combustion engine cars.
In China, the soaring popularity of locally made EVs has foreign brands fighting for survival, and Japanese carmakers there are stuck with too much capacity. Honda and Nissan have both had to pare back staffing and production, while Mitsubishi Motors has all but extricated itself from China, the world’s biggest car market.
Meanwhile, a rebound in sales of hybrid gas-electric cars in North America has left Nissan on the backfoot while Toyota, a pioneer in hybrid technology, has received a welcome boost. Nissan missed that window of opportunity due to its outdated product lineup that was missing attractive options for hybrids, much less any competitive EVs.
For Nissan, the merger with Honda could provide much-needed relief after paltry sales in the US and China triggered a huge drop in revenue, forcing the battered carmaker to cut jobs, slash production capacity and lower its annual profit outlook by 70%.
“Partnering with Honda isn’t a sign that we’re giving up on our plans to turn Nissan around,” Nissan CEO Makoto Uchida said Monday.
Nissan was rescued from its last financial crisis more than two decades ago when French carmaker Renault SA swooped in with a cash injection and dispatched Carlos Ghosn to orchestrate a turnaround. Ghosn’s shock arrest and ouster in late 2018 paved the way for Uchida to take the helm.
Ghosn has resided in Beirut since his daring escape from Japan five years ago. While on bail facing charges of financial misconduct, he hired a father-son extraction team to smuggle him onto a private plane in a music-equipment box and flew to Lebanon, which rarely extradites its citizens.
The exiled executive weighed in again about the merger on Monday, saying that to him, it doesn’t make sense.
Speaking at the Foreign Correspondents’ Club of Japan via teleconference, Ghosn pointed out that Nissan’s unit sales have fallen more 40% since 2018, and the carmaker has gone from making billions of dollars in revenue every year to barely breaking even.
Nissan’s sinking share price — the stock is down 19% this year — and financial travails have also caught the attention of activist investors. Singapore’s Effissimo Capital Management Pte took a 2.5% stake in November.
While it’s fair to say the merits of a merger aren’t as obvious for Honda, a partnership with Nissan and Mitsubishi Motors would provide the scale and competitive edge it’s been seeking for years to maintain its presence in a global industry increasingly dominated by consolidated, big players.
“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. said last week when reports of a tie-up emerged.
Uchida and Mibe also said they didn’t know anything about Hon Hai Precision Co., the Taiwan-based iPhone maker known as Foxconn, showing interest in a takeover of Nissan.
People familiar with the matter said last week that Foxconn sent a delegation to meet with Renault — which owns 36% of Nissan and will therefore have a say in any merger — in France. However Foxconn has now put its interest in pursuing Nissan on hold while negotiations with Honda are underway, one person said.
(Updates with further details from media briefing.)
