Honda, Nissan enter official merger talks to form third-largest automaker

Japanese automakers Honda and Nissan have officially announced they have entered merger discussions to create the world’s third-largest automaker by sales.

The merger aims to help both companies compete more effectively in the rapidly evolving electric vehicle (EV) and intelligent driving technology sectors.

Honda CEO Toshihiro Mibe emphasized the need for greater scale to stay competitive in these areas. "The companies need greater scale to compete in the development of new technologies in electric vehicles and intelligent driving.

A business integration would give us an edge that will not be possible under the current collaboration framework," Mibe said. He also highlighted that the integration would allow the companies to share intelligence and resources, deliver economies of scale, and achieve synergies while protecting both brands.

A holding company would be formed as the parent entity, with both Honda and Nissan listed on the Tokyo Stock Exchange. Honda, being the larger of the two companies, would nominate most of the board members of the merged entity.

The integrated group is projected to have a combined revenue of 30 trillion yen (approximately $191.4 billion) and operating profit of over 3 trillion yen.

Honda reported an operating profit of 1.382 trillion yen for the fiscal year ending March 2024, while Nissan reported 568.7 billion yen.

The merger would create a combined company with an estimated market value of nearly $54 billion, with Honda contributing the larger portion of $43 billion.

Discussions between the two companies are expected to conclude by June 2025, with Mibe noting that the integration is projected to be a mid-to-long-term project, with visible results not expected until 2030 or beyond.

Nissan’s strategic partner, Mitsubishi, has been offered the opportunity to join the new group and is expected to make a decision by the end of January 2025.

The proposed merger comes as the companies face fierce competition in the EV market from Tesla and China's BYD, with the transition to electric vehicles driving consolidation across the automotive industry.

Peter Wells, professor of business and sustainability at Cardiff Business School, commented on Nissan's struggles, saying, "Nissan has been struggling in the market, it’s been struggling at home, it doesn’t have the right product line-up. There are so many warning signs, so many red flags around Nissan at the moment that something had to happen."

Renault, which holds a 17% stake in Nissan and another 18.7% through a French trust, saw its shares fall 1.2% in response to the news. Meanwhile, Nissan's shares closed 1.2% higher, Honda’s rose 3.8%, and Mitsubishi’s increased by 0.6%.

The proposed merger follows Nissan's recent financial struggles, including its decision to cut 9,000 jobs and reduce global production capacity by 20%.

Mibe acknowledged that some of Honda’s shareholders might view the deal as a form of support for Nissan, but he stressed that the merger is based on the assumption that Nissan will successfully complete its turnaround efforts.

"If Nissan and Honda fail to stand on their own feet, the business integration talks will not come to fruition," Mibe stated.

Nissan CEO Makoto Uchida also emphasized that the merger discussions do not indicate the company has abandoned its efforts to turn around its business. "After doing this turnaround action for future development, future growth, we need to look at ultimate size and growth. This growth will be through partnerships," Uchida explained.