On Monday, Japanese manufacturers Honda and Nissan declared that they had officially begun negotiations to combine and form the third-largest carmaker in the world based on sales.
Honda CEO Toshihiro Mibe stated during a press conference on Monday that the company required more size in order to compete in the development of new technologies in intelligent driving and electric vehicles. According to a translation, Mibe stated that a business merger would provide the companies with an advantage that is not achievable under the current framework for collaboration.
According to him, the agreement would seek to preserve both trademarks while exchanging resources and intelligence in order to create economies of scale and synergies.
Honda and Nissan would both be listed on the Tokyo Stock Exchange under a holding company that would serve as their parent business. The majority of the board members of the combined business will be nominated by the larger Honda. According to him, the combined company could generate 30 trillion yen ($191.4 billion) in revenue and over 3 trillion yen in operational profit.
Honda’s operating profit for the full year ending March 2024 was 1.382 trillion yen, whereas Nissan’s was 568.7 billion yen. Together, the businesses would be worth almost $54 billion, with Honda’s market capitalization accounting for the larger $43 billion portion.
The talks are scheduled to end in June 2025.
If allowed, the integration would be a mid- to long-term undertaking, according to Mibe, with no discernible progress anticipated until 2030 and beyond.
The opportunity to join the new group has been extended to Nissan’s strategic partner Mitsubishi, who will make a choice by the end of January 2025.
The companies are grappling with intense global competition in the EV market from the likes ofTeslaand China s BYD. It has long been anticipated that industry consolidation will be fueled by the high cost of the EV transition for legacy businesses.
In terms of sales, Japan’s Toyota is the largest carmaker in the world, followed by Germany’s Volkswagen. A Nissan-Honda tie-up would see the group overtake South Korea s Hyundai.
Nissan struggles
The proposed deal wasfirst reported by Japan s Nikkei newspaperon Dec. 17.
Nissan shares spiked after the initial report of a merger. Analystssay the potential tie-upis a result offinancial underperformanceat the company and of therestructure of its long-standing partnershipwith France sRenault.
In its most recent quarterly results, Nissansaidit would cut 9,000 jobs and reduce global production capacity by a fifth.
Honda CEO Mibe on Monday said some of the company s shareholders may feel that the deal would represent Honda supporting Nissan, but noted the merger was based on the assumption that Nissan completes its turnaround action.
If Nissan and Honda fail to stand on their own feet the business integration talks will not come to fruition, he said.
Nissan CEO Makoto Uchida told reporters that the discussion of integration did not mean we have given up on a turnaround and was instead about ensuring the company s competitiveness for the future.
After doing this turnaround action for future development, future growth, we need to look at ultimate size and growth. This growth will be through partnerships, he added.
Nissan has been struggling in the market, it s been struggling at home, it doesn t have the right product lineup, Peter Wells, professor of business and sustainability at Cardiff Business School s Centre for Automotive Industry Research, told CNBC sStreet Signs Europelast week.
There are so many warning signs, so many red flags around Nissan at the moment that something had to happen. Whether this is the answer is another question, Wells added.
Shares of Renault closed 1.2% higher on Monday. The company directly holds a17% stakein Nissan and owns another 18.7% via a French trust, while Nissan is a strategic investor in Renault s EV and software entity Ampere.
In Asia trade, Nissan shares closed 1.2% higher ahead of the announcement, with Honda up 3.8% and Mitsubishi finishing 0.6% higher.
CNBC s Ruxandra Iordache and Sam Meredith contributed to this story.
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