(Bloomberg) — Honda Motor Co. is in talks to acquire Nissan Motor Co. to help by potentially forming the world’s third-largest automaker to better address the escalating challenges facing the global auto industry.
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The two Japanese manufacturers are engaged in merger talks that appear to have accelerated after Hon Hai Precision Industry Co., the Taiwan-based maker of iPhones known as Foxconn, approached Nissan about acquiring a stake in the company, a person familiar with the matter said with the case. . Foxconn has invested heavily in factories to build electric vehicles.
Nissan shares – which had lost two-thirds of their value since the arrest of former Chairman Carlos Ghosn in late 2018 – rose a record 24% in Tokyo trading on Wednesday. Honda’s stock fell 3% to its lowest closing price in more than a year.
Nissan’s years of simmering troubles came to a head in early November, when the company cut profit forecasts and said it would have to cut 9,000 jobs worldwide. The automaker also announced a 20% cut in global production as consumers turn their backs on lackluster offerings and let the models gather dust at dealerships.
Since then, several entities have joined Nissan, including several activist investors who have built positions in the stock. Honda’s market value is more than four times that of Nissan, despite the former making only marginally more cars. This indicates that Honda would have the upper hand in talks about a possible deal that the company describes as a merger.
Renault SA will also necessarily have a say in any deal as it owns 36% of Nissan – a remnant of a long-standing alliance between French carmaker Nissan and Mitsubishi Motors Corp. Renault is open to a possible merger of Nissan with Honda as the talks could shield Renault from the crisis plaguing its partner, according to people familiar with the situation.
It is unclear whether Nissan is also in talks with Foxconn or has already rejected its overtures.
A Nissan spokesperson declined to comment. A Foxconn representative was not immediately available for comment. Honda Executive Vice President Shinji Aoyama said the automaker is considering several options, which could also include a capital tie or the creation of a holding company under which the combined companies would operate.
A Honda-Nissan deal could be expanded to include Mitsubishi Motors, which already has capital ties with Nissan, a person familiar with the talks said.
An announcement by Honda and Nissan could come as early as December 23, Japanese broadcaster TBS reported on Wednesday. The duo plan to sign a Memorandum of Understanding to discuss shared equity interests in a new holding company, the Nikkei first reported on Tuesday.
The Nikkei suggested that Foxconn’s stake in Nissan accelerated Honda’s merger efforts amid concerns that the Japanese company could be vulnerable to a takeover by the Taiwanese company.
A similar dynamic is playing out at one of Japan’s largest consumer brands, Seven & i Holdings Co. The founding family is leading a consortium to take the company private to pursue a takeover proposal from Canada’s Alimentation Couche-Tard Inc. to repel.
A Honda-Nissan merger would effectively consolidate Japan’s auto industry into two main camps: one controlled by Honda, Nissan and Mitsubishi, and the other composed of Toyota Motor Corp. and various competitors in which the company has interests.
Nissan and Honda face challenges worldwide, but especially in China. Both suffer from wildly popular local manufacturers led by BYD Co., as well as Tesla Inc. by Elon Musk. The shift to electrification – which is happening at different speeds in different markets – is disrupting business models that have been in place for decades.
Honda, Nissan and Mitsubishi sold about 4 million vehicles worldwide in the first six months of the year, well below the 5.2 million Toyota sold on its own.
By joining forces, the two companies could keep Toyota, the world’s largest automaker, at home and abroad. Toyota has taken shares in Subaru Corp., Suzuki Motor Corp. and Mazda Motor Corp., creating a powerhouse of brands backed by its excellent credit rating.
“There are simply too many Japanese automakers and mergers are becoming necessary to become more competitive globally,” said Hiroki Ihara, an analyst at Tachibana Securities Co.
For Foxconn, taking a controlling stake in a Japanese company would not be unprecedented. In 2016, it took a two-thirds stake in electronics maker Sharp Corp., giving it a number of advantages including a well-known consumer electronics brand, LCD manufacturing capabilities and intellectual property. It has slowly reduced that stake over time, but is still the largest shareholder.
Japanese business publication Diamond Online first reported Foxconn’s proposal earlier Wednesday.
–With help from Jane Lanhee Lee, Tsuyoshi Inajima, Nicholas Takahashi, Shadab Nazmi, Yasufumi Saito, Albertina Torsoli, Stefan Nicola, and Craig Trudell.
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