(Bloomberg) — Honda Motor Co. outlined plans for a long-term deal that would amount to a takeover of Nissan Motor Co. in all but name, as Japanese automakers struggle to keep up in an increasingly competitive global auto industry.
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The two announced on Monday a preliminary agreement to establish a joint holding company that aims to take the shares public in August 2026. While their executives called the transaction a merger, Honda will take the lead in forming the new entity and appoint a majority of its directors. . Nissan’s partner Mitsubishi Motors Corp. could also participate in the deal.
Honda and Nissan are both struggling to compete with rising domestic automakers in China, which overtook Japan last year as the world’s largest auto-exporting country and is set to advance even further in 2024. Honda CEO Toshihiro Mibe spoke about the difficulty ahead for the companies when he said at a press conference that their goal is to be competitive by 2030.
“The merger synergies between Honda and Nissan will take some time to materialize if a deal is struck in 2025,” Tatsuo Yoshida, a senior industry analyst at Bloomberg Intelligence, said in a note. “Nissan may get relief from financial pressure, while Honda’s near-term benefits may be limited.”
Honda did offer a sweet treat to its shareholders, announcing plans to buy back as much as ¥1.1 trillion yen ($7 billion) of its shares by this time next year. The upper limit for the buyback is 24% of the outstanding shares.
A Honda bailout could avert total disaster for Nissan and Mitsubishi Motors, whose standings have deteriorated since the arrest of their former chairman Carlos Ghosn in November 2018. Just over a year after Nissan accused its longtime leader of financial misconduct, he fled from Japan to Lebanon. .
Ghosn, 70, has denied all allegations and claimed Nissan had defamed him.
Mitsubishi Motors, which is 24.5% owned by Nissan, has signed a preliminary agreement to explore joining the deal with Honda and said it expects to confirm the decision by the end of January.
Honda’s shares closed 3.8% higher in Tokyo on Monday, recouping much of the loss since deal talks were first reported last week. Shares of Nissan and Mitsubishi Motors rose 1.6% and 5.3% respectively.
Combining the three companies would create one of the world’s largest automakers, although the group would still be smaller than Japan’s Toyota Motor Corp. Joining forces could also strengthen their efforts to target Chinese manufacturers led by BYD Co. leading electric vehicle manufacturers.
Nissan’s largest shareholder, France’s Renault SA, acknowledged the announcement from its longtime alliance partner and said talks with Honda were still at an early stage.
Renault, which owns 36% of Nissan, also said in a statement that it will consider all options and continue to implement its strategy, including joint projects with Nissan.
Honda’s CEO Mibe said the combination with Nissan would generate billions of yen in additional operating profit, although he gave no timelines. The 63-year-old director also did not elaborate on how the companies would deal with pressing issues such as closing factories.
“Both companies will continue as wholly owned subsidiaries of the joint holding company with their respective brands,” Mibe said.
Honda’s share buyback replaces a previously announced plan to buy back ¥100 billion of shares from November 7 this year through October 2025. The big buyback is being launched now as Honda’s ability to buy back shares is expected to be limited going forward. to the deal that the companies want to close in 2026.
Nissan has declined in the years since Ghosn’s ouster, losing its position as an early candidate in the shift to all-electric vehicles.
In China, the rising popularity of locally produced electric vehicles has left some foreign brands struggling to survive. Honda and Nissan have both had to reduce their workforces and production, while Mitsubishi Motors has all but withdrawn from the world’s largest car market.
Nissan is also taking a back seat amid the resurgence in popularity of gas-electric hybrid cars in the US. Although Toyota dominates the powertrain segment, Honda is relatively well positioned and could provide a welcome boost.
The combination of declining sales in the US and China has been devastating for Nissan, causing the company to cut thousands of jobs, cut production capacity and slash its annual profit outlook by 70%.
“Working with Honda is not a sign that we are giving up on our plans to change Nissan,” Nissan CEO Makoto Uchida said Monday.
Nissan was rescued from the last financial crisis more than two decades ago, when Renault swooped in with a cash injection and sent Ghosn to engineer a turnaround. The exiled executive weighed in on the deal talks from Beirut, telling Bloomberg Television last week that Nissan is in “panic mode.”
During a conference call with the Foreign Correspondents’ Club of Japan, Ghosn pointed out Monday that Nissan sales have fallen more than 40% since 2018 and the automaker is barely breaking even.
Nissan’s Uchida and Honda’s Mibe said they knew nothing about Hon Hai Precision Co., the Taiwan-based iPhone maker known as Foxconn, which was interested in acquiring Nissan.
People familiar with the matter said last week that Foxconn had sent a delegation to meet with Renault in France. However, Foxconn has suspended its interest in pursuing Nissan while negotiations with Honda take place, one person said.
–With help from Craig Trudell.
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