Japanese auto giants Honda and Nissan have begun dialogue towards a potential merger that would create the world’s third biggest car company — worth $50 billion.
Chiefs of both companies confirmed they were working towards a merger on Monday, confirming speculation that sent Nissan shares up by more than 24% last week.
Smaller Mitsubishi Motors, in which Nissan is top shareholder, was also considering joining, the companies said, in a joint press conference in Tokyo.
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“The rise of Chinese automakers and new players has changed the car industry quite a lot,” Honda CEO Toshihiro Mibe told the press conference.
“We have to build up capabilities to fight with them by 2030, otherwise we’ll be beaten,” he said.
The two companies would aim for combined sales of 30 trillion yen ($191 billion) and operating profit of more than 3 trillion yen through the potential merger, they said.
Combining with Mitsubishi Motors would take the Japanese group’s global sales to more than 8 million cars. The current No. 3 group is South Korea’s Hyundai and Kia.
They aimed to wrap up talks around June 2025 and then set up a holding company by August 2026, at which time both companies’ shares would be delisted.
Honda has a market capitalisation of more than $40 billion, while Nissan is valued at about $10 billion.
Honda will appoint the majority of the holding company’s board, it said.
French automaker Renault, Nissan’s largest shareholder, is open in principle to a deal and would examine all the implications of a tie-up, sources have said.
Shares in Honda ended the day up 3.8%, Nissan rose 1.6% and Mitsubishi Motors gained 5.3% after the news reports on the details of the planned merger, while the benchmark Nikkei closed up 1.2%.
The China impact
The merger of the two storied Japanese brands underlines the threat Chinese EV makers now pose to some of the world’s best known car makers.
The move could give the two companies scale and a chance to share resources in the face of intense competition from Tesla and more nimble Chinese rivals, such as BYD.
Like most other foreign carmakers, Honda and Nissan have lost ground in China — the world’s car biggest market — amid increasing competition from local carmakers like BYD that make electric and hybrid cars loaded with innovative software.
In November, Honda reported a worse-than-expected 15% slump in second-quarter operating profit due to declining sales in China.
Meanwhile, Nissan, which has taken a much worse hit, announced a plan to cut 9,000 jobs and 20% of its global production capacity.
Still, experts have warned both carmakers will have to manage a range of challenges for the merger to be successful. The companies will need to pay particular attention to integrating the corporate culture, they warned.
Former Nissan chairman Carlos Ghosn also said on Monday he did not believe the Honda-Nissan alliance would be successful. The two automakers were not complementary, he said.
Ghosn is wanted as a fugitive in Japan for jumping bail and fleeing to Lebanon. His 2018 arrest for financial wrongdoing pitched Nissan into a crisis.
- Reuters, with additional editing by Vishakha Saxena
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