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Nissan and Honda Consider Merger to Take on World’s Biggest Carmaker

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Honda Motor Co. and Nissan Motor Co. are exploring a potential merger, according to people familiar with the matter, which would create a singular riv

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Honda Nissan merger
Honda and Nissan are exploring possibilities of merging to take on their primary rival and the biggest carmaker in the world, Toyota. (via Reuters)

Honda Motor Co. and Nissan Motor Co. are exploring a potential merger, according to people familiar with the matter, which would create a singular rival to Toyota Motor Corp. in Japan and better position the combined company to face competitive challenges around the world.

The two carmakers have been holding preliminary talks about a combination, the people said Tuesday, asking not to be identified because discussions are private. One option being considered is the creation of a new holding company under which the combined businesses would operate, one of the people said. The transaction could also be expanded to include Mitsubishi Motors Corp., the person said.

Discussions are early stage and may not lead to an agreement, the people said.

While Honda and Nissan stopped short of confirming the merger talks, both automakers issued statements that reiterated their previous pledges for further future cooperation.

“We will inform our stakeholders of any updates at an appropriate time,” Honda said in its statement.

Such a deal would effectively consolidate the Japanese auto industry into two main camps: One controlled by Honda, Nissan and Mitsubishi and another consisting of Toyota group companies. It would also provide them with more resources to compete with larger peers globally after downsizing long-held partnerships with other carmakers. Nissan has loosened ties with France’s Renault SA and Honda has backed away from General Motors Co.

The move toward a merger would follow a decision by the two companies earlier this year to work together on electric vehicle batteries and software. At that time, Honda Chief Executive Officer Toshihiro Mibe floated the possibility of a capital tie-up with Nissan.

The two Japanese carmakers plan to sign a memorandum of understanding to discuss shared equity stakes in a new holding company, the Nikkei reported earlier in the day. The merger would help the manufacturers compete against rivals in electric vehicles such as Tesla Inc. and Chinese automakers, it said.

American depositary receipts of Honda and Nissan shares climbed on the report. Nissan ADRs rose 12% and Honda’s gained 0.9% in late New York trading.

Taking on Toyota

In some ways, it could be seen as a defensive merger among Japan’s weaker players. 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 Corp., Suzuki Motor Corp. and Mazda Motor Corp., creating a powerhouse of brands backed by its top-notch credit rating.

Honda’s valuation stood at 6.8 trillion yen as of the close of trading in Tokyo on Tuesday, well above Nissan’s 1.3 trillion yen market capitalization. But even their combined value is dwarfed by Toyota’s 42.2 trillion yen.

Honda has long struggled to keep up with bigger capitalized rivals when it comes to investments in new technologies. It has recently shifted gears to boost hybrid gas-electric vehicles even as it spends billions of dollars on all-electric production. At the same time, Honda’s arms-length partnership with GM has been weakened, most recently earlier this month when their self-driving car partnership ended. GM has strengthened its ties with South Korea’s Hyundai Motor Co.

Nissan is in need of a partner to put it back on a stronger financial footing as it steps up restructuring efforts to cope with stalled revenue growth and lower profits. It faces pressure from an activist shareholder and a daunting debt load that has led to speculation in credit markets about its investment grade rating.

The Yokohama-based company has partially unwound its complex 25-year strategic partnership with Renault, a fixation of former Chair Carlos Ghosn. Rivalries and mutual suspicion mounted over the years and came to a head when Ghosn openly contemplated a merger, contributing to his downfall.

The former chairman and CEO, who has filed a suit against his former company for ousting him in 2018, warned of a “disguised takeover” of Nissan by Honda in an August interview with Automotive News.

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The merger talks come after the Financial Times said last month that Nissan was looking for an anchor investor to replace part of Renault’s equity holding and that it hadn’t ruled out having Honda buy some of its shares.

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First Published Date: 18 Dec 2024, 05:07 AM IST

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