Honda Motor Co. has laid out plans for an extended agreement that essentially leads to acquiring Nissan Motor Co., as these Japanese automakers grapple with challenges in an increasingly fierce global car market.
In a significant development on Monday, the two companies revealed they’re working on setting up a joint holding company, aiming to have shares available for the public by August 2026. Although both parties describe this move as a merger, Honda is clearly steering the ship, planning to appoint most of the board members in this forthcoming entity. There’s also talk that Mitsubishi Motors Corp., currently in partnership with Nissan, might join this venture too.
The response from the stock market was immediate. On Tuesday, Nissan saw a drop of as much as 7.3% at Tokyo’s market opening while Honda enjoyed a 14.4% rise in its shares.
“This looks much like a takeover at first glance,” commented Neal Ganguli, a partner and managing director at AlixPartners. He highlighted that gaining scale offers substantial benefits, something likely to catch the attention of many.
Both Honda and Nissan are currently feeling the heat from domestic automakers in China, who last year surpassed Japan as the top car exporter worldwide. The gap is set to widen even more in 2024. During a press briefing, Honda’s CEO, Toshihiro Mibe, acknowledged the tough road ahead, setting sights on competitiveness by 2030.
Tatsuo Yoshida from Bloomberg Intelligence weighed in, suggesting that the benefits from any potential merger won’t be immediate, and while Nissan might find some reprieve from financial pressures, Honda won’t see significant advantages right away.
Adding a sweet twist for their investors, Honda announced a massive stock buyback plan, intending to purchase up to ¥1.1 trillion (roughly $7 billion) in shares by next year, which amounts to 24% of the outstanding shares.
With Honda’s backing, Nissan and Mitsubishi Motors could stave off a complete downfall, a decline that began after their former Chairman, Carlos Ghosn, was arrested in 2018. Accused of financial misconduct, Ghosn left Japan for Lebanon, denying all allegations against him and claiming defamation by Nissan.
Mitsubishi Motors, with a 24.5% ownership stake by Nissan, has agreed to explore joining this deal with Honda, expecting to make a definite decision by January’s end.
On Monday, Honda’s shares climbed by 3.8% in Tokyo, recovering much of the value they lost since news of the talks surfaced last week, while shares of Nissan and Mitsubishi Motors also saw an upward trend.
Joining forces could create one of the automotive giants globally, though still a notch below Toyota. Such an alliance might also help them fend off competition from Chinese manufacturers like BYD Co., now a big name in electric vehicles.
Renault SA, Nissan’s largest shareholder, acknowledged the ongoing discussions between Honda and Nissan, noting that these talks are still in their early phases. Renault, which holds a 36% stake in Nissan, plans to consider all options while continuing its collaborative projects with Nissan.
CEO Mibe of Honda projected that teaming up with Nissan could yield billions in additional operating profits, though he didn’t specify a timeline and avoided touching on tricky issues like potential factory closures.
He assured that both companies would maintain their brand identities under the new holding company. Honda’s forthcoming share buyback exceeds its previous plan, pivoting to aggressive repurchasing before restrictions kick in as they near this deal’s conclusion in 2026.
Nissan has had a tough run post-Ghosn’s departure, once a pioneer in electric vehicles now struggling to keep up.
Within China, where locally made electric vehicles are rapidly gaining favor, many international brands are in a fight for survival. Both Honda and Nissan have cut back their workforce and production, while Mitsubishi almost entirely exited this key market.
In the U.S., Nissan has been left behind amidst growing interest in gas-electric hybrids. While Toyota dominates this space, Honda seems well-positioned and could provide an essential push for Nissan.
Plummeting sales across the U.S. and China have hit Nissan hard, leading to significant job cuts, scaled-down production, and a drastic reduction in annual profit forecasts by as much as 70%.
Despite the potential merger, Nissan’s CEO, Makoto Uchida, insists that they aren’t abandoning their turnaround plans. Nissan previously faced dire financial straits over two decades ago, only to be saved by Renault’s intervention, spearheaded by Ghosn who recently described Nissan as being in “panic mode.”
From Beirut, Ghosn highlighted through a video call that Nissan’s sales have dropped by over 40% since 2018, leaving the company merely breaking even.
Both Uchida from Nissan and Mibe from Honda denied any knowledge of interest from Foxconn—known for its iPhone manufacturing— in purchasing Nissan. It’s reported that Foxconn’s discussions with Renault are on hold while the current negotiations with Honda are ongoing.
With support from Craig Trudell and Chester Dawson, this news was updated to reflect the latest share prices on Tuesday.
©2024 Bloomberg L.P.
