(Bloomberg) — Honda Motor Co. sketched out. plans for a lengthy deal that amounts to the acquisition of Nissan Motor Co., as Japanese automakers struggle to keep up in an increasingly competitive global auto industry.
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The two announced a tentative agreement on Monday to establish a joint holding company that will aim for a share listing in August 2026. Although their executives are calling the transaction a merger, Honda will take the lead in forming the entity new and nominates a majority of its directors. Nissan's partner, Mitsubishi Motors Corp., may also participate in the deal.
“On the face of it, it's an acquisition,” said Neal Ganguli, partner and managing director of automotive and industrial advisory firm AlixPartners. “Scale definitely has advantages, and people will have to take notice.”
Both Honda and Nissan are struggling to contend with rising domestic automakers in China, which overtook Japan as the world's largest car exporting nation last year and is moving further ahead in 2024. Honda CEO Toshihiro spoke Mibe about the level of difficulty ahead for the companies when he said during a press conference that their aim is to be competitive by 2030.
“The synergies of the Honda and Nissan merger will take time to materialize if a deal closes in 2025,” Tatsuo Yoshida, senior industry analyst for Bloomberg Intelligence, said in a note. “Nissan may be relieved of its financial stress, while Honda's near-term benefits may be limited.”
Honda offered some sweetener to its shareholders, announcing plans to buy back as much as ¥1.1 trillion yen ($7 billion) of its stock by this time next year. The upper limit of the buy back corresponds to 24% of the shares issued.
A rescue by Honda would avoid complete disaster for Nissan and Mitsubishi Motors, whose positions have declined since the arrest of their former Chairman Carlos Ghosn in November 2018. Just over a year after Nissan accused its long-time leader of financial misconduct, it Japan fled for Lebanon.
Ghosn, 70, has denied all charges and claims that Nissan has defamed him.
Mitsubishi Motors, which is 24.5% owned by Nissan, signed a preliminary agreement to explore joining the deal with Honda, saying it expected to confirm the decision by the end of January.
Honda stock closed up 3.8% on Monday in Tokyo, recovering much of its loss since the deal talks were first reported last week. Shares in Nissan and Mitsubishi Motors rose 1.6% and 5.3%, respectively.
Combining the three companies would create one of the world's largest carmakers, although the group would still be smaller than Japan's Toyota Motor Corp. A merger could also strengthen their efforts to fend off Chinese manufacturers led by BYD Co., now among the world's companies. leading electric vehicle manufacturers.
Nissan's largest shareholder, France's Renault SA, acknowledged its long-time alliance partner's announcement, saying talks with Honda were still in their early days.
Renault, which owns 36% of Nissan, also said in a statement that it will consider all options and continue to implement its strategy, which includes joint projects with Nissan.
Honda CEO Mibe said combining with Nissan would generate billions of yen in incremental operating profit, though he did not offer timelines. The 63-year-old executive also did not address how the companies would deal with pressing issues such as factory closures.
“Both companies will continue as wholly owned subsidiaries of the joint holding company with their respective brands in place,” Mibe said.
Honda's share buyback replaces a previously announced plan to buy back ¥100 billion worth of stock from November 7 this year until October 2025. The major buyback is being launched now as Honda's share buyback capacity is expected to be restricted during the preparation period. to the deal the companies intend to close in 2026.
Nissan has withered in the years since Ghosn's ouster, squandering its position as an early contender in the move to fully electric vehicles.
In China, the growing popularity of locally made EVs has left some foreign brands fighting for survival. Honda and Nissan have had to reduce staffing and production, while Mitsubishi Motors has almost pulled out of the world's biggest car market.
Nissan has also been on the back foot amid a resurgence in the popularity of gas-electric hybrid cars in the United States. Although Toyota dominates the powertrain segment, Honda is in a relatively good position and could provide a welcome boost.
The combination of falling sales in the US and China has been devastating for Nissan, leading the company to cut thousands of jobs, cut production capacity and lower its annual profit forecast by 70%.
“Partnering with Honda is not a sign that we are abandoning our plans to transform Nissan,” Nissan CEO Makoto Uchida said on Monday.
Nissan was rescued from its last financial crisis more than two decades ago, when Renault brought in a cash injection and sent Ghosn to orchestrate a turnaround. The expatriate executive weighed in on the deal talks from Beirut, telling Bloomberg Television last week that Nissan was in “panic mode.”
Speaking to the Foreign Correspondents Club of Japan via teleconference on Monday, Ghosn pointed out that Nissan unit sales have fallen more than 40% since 2018 and the carmaker is barely breaking even.
Nissan's Uchida and Honda's Mibe said they knew nothing about Honorable Hai Precision Co., the Taiwanese iPhone maker known as Foxconn, which is interested in taking over Nissan.
People familiar with the matter said last week that Foxconn had sent a delegation to meet with Renault in France. However, Foxconn has shelved its interest in pursuing Nissan as talks with Honda have stalled, one person said.
