Honda, Nissan to start talks on possible merger, Nikkei says

Honda Motor Co. and Nissan Motor Co. are preparing to start negotiations on a possible merger, which ultimately could be expanded to include Mitsubishi Motors Corp., Japan’s Nikkei reported Tuesday.

Such a deal would create an automotive rival to Toyota Motor Corp. that would effectively consolidate the Japanese auto industry into two camps. It would also provide Honda and Nissan with more resources to compete with larger peers after downsizing long-held global partnerships with other carmakers: France’s Renault SA for Nissan and General Motors Co. for Honda.

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.

While Honda and Nissan stopped short of confirming Tuesday’s report, 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.

American depositary receipts of Honda and Nissan shares climbed on the report. Nissan ADRs rose 11% and Honda’s gained 0.9% in late New York trading.

Taking on Tesla

The two major Japanese carmakers plan to sign a memorandum of understanding to discuss shared equity stakes in a new holding company under which the combined company would operate, the Nikkei said, without citing sources. The merger would help the manufacturers compete against rivals in electric vehicles such as Tesla Inc. and Chinese automakers, it said.

It also puts them in a better position to compete at home and abroad with Toyota, the world’s largest automaker. 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, 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.

What Bloomberg Intelligence Says

Should the companies combine along with Mitsubishi Motors, as reported by Nikkei, it would create a 6.7 million-unit group, bigger than General Motors but behind Hyundai, and raise further questions for the group’s strategy with Renault.

- Joel Levington, director of credit research

Honda’s valuation stood at 6.8 trillion yen ($44.4 billion) 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 recently has shifted gears to boost hybrid gas-electric vehicles even as it spends billions of dollars on all-electric production.

Honda’s arms-length partnership with GM has been weakened bit by bit, most recently earlier this month when their self-driving car partnership ended. Meanwhile, GM has strengthened its ties with South Korea’s Hyundai Motor Co.

Unwinding Renault Alliance

Nissan 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.

What’s Wrong With Nissan and How Bad Are Its Problems: QuickTake

Nissan also has stepped 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 reported 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.