(Bloomberg) – Honda Motor Co. and Nissan Motor Co. are preparing to start negotiations on a possible merger that could eventually be expanded to include Mitsubishi Motors Corp., Japan’s Nikkei reported Tuesday.
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Such a deal would threaten Toyota Motor Corp.’s automotive rival. that would effectively consolidate Japan’s auto industry into two camps. It would also give Honda and Nissan more resources to compete with larger rivals after downsizing long-standing global partnerships with other automakers: France’s Renault SA for Nissan and General Motors Co. for Honda.
The move towards a merger would follow a decision by the two companies earlier this year to collaborate on batteries and software for electric vehicles. At the time, Honda CEO Toshihiro Mibe suggested the possibility of a capital tie with Nissan.
While Honda and Nissan did not confirm Tuesday’s report, both automakers issued statements reiterating their previous commitments for further future cooperation.
“We will inform our stakeholders of any updates at an appropriate time,” Honda said in a statement.
American depositary receipts for Honda and Nissan shares rose on the report. Nissan’s ADRs rose 11% and Honda’s rose 0.9% in late New York trading.
Tackling Tesla
The two major Japanese automakers plan to sign a Memorandum of Understanding to discuss shared equity interests in a new holding company under which the combined company would operate, the Nikkei said, without citing sources. The merger would help the manufacturers compete with electric vehicle rivals such as Tesla Inc. and Chinese automakers, the report said.
It also puts them in a better position to compete at home and abroad with Toyota, the world’s largest automaker. 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. 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.
What Bloomberg Intelligence Says
If the companies were to team up with Mitsubishi Motors, as reported by Nikkei, it would create a 6.7 million unit group, bigger than General Motors but behind Hyundai, and raise further questions about the group’s strategy with Renault.
— Joel Levington, director of credit research
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Honda’s valuation stood at 6.8 trillion yen ($44.4 billion) at the close of trading in Tokyo on Tuesday, well above Nissan’s market capitalization of 1.3 trillion yen. But even their combined value pales in comparison to Toyota’s 42.2 trillion yen.
Honda has long struggled to keep pace with larger-capitalized rivals when it comes to investing in new technologies. The company recently shifted gears to boost gas-electric hybrid vehicles even as it spends billions of dollars on all-electric production.
Honda’s arm’s length partnership with GM has weakened bit by bit, most recently earlier this month when their partnership on self-driving cars ended. Meanwhile, GM has cut ties with South Korea’s Hyundai Motor Co.
Dissolution of the Renault Alliance
Nissan has partially dissolved its complex 25-year strategic partnership with Renault, a fixation of former chairman Carlos Ghosn. The rivalry and mutual distrust increased over the years and came to a head when Ghosn openly considered a merger, contributing to his downfall.
The former chairman and CEO, who has filed suit against his former company for ousting him in 2018, warned of a “disguised takeover” of Nissan by Honda in an interview with Automotive News in August.
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Nissan has also stepped up restructuring efforts to cope with stalled sales growth and lower profits. It faces pressure from an activist shareholder and a huge debt load that has led to speculation in credit markets over its investment grade rating.
The reported merger talks come after the Financial Times said last month that Nissan was looking for a lead investor to replace some of Renault’s shareholding and that it had not ruled out Honda buying some of its shares.
–With help from Craig Trudell.
(Updates with market cap data in ninth paragraph.)
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