Nissan and Honda Consider Merger to Take on World’s Biggest Carmaker

Taking on Toyota

In some ways, it could be seen as a defensive merger among Japan’s weaker players. Honda, Nissan and Mitsubishi combined sold about 4 million vehicles globally in the first six months of the year, well shy of the 5.2 million that Toyota sold on its own. Combining forces would allow the two companies to fend off Toyota, the world’s largest automaker, at home and abroad. Toyota has taken stakes in Subaru Corp., Suzuki Motor Corp. and Mazda Motor Corp., creating a powerhouse of brands backed by its top-notch credit rating.

“While this would be good news for Nissan due to their weakened state, they would have a lot of overlap and other issues to overcome,” said Julie Boote, a senior analyst at Pelham Smithers Associates. “For the Toyota group though we could see an acceleration there as well as it gathers its flock more tightly under its wing in a show of commitment, with the possibility of raising its stakes in Subaru, Suzuki and Mazda sooner rather than later.”

Honda’s valuation stood at ¥6.8 trillion ($44.4 billion) as of the close of trading in Tokyo on Tuesday, well above Nissan’s ¥1.3 trillion market capitalization. But even their combined value is dwarfed by Toyota’s ¥42.2 trillion.

Honda has long struggled to keep up with bigger capitalized rivals when it comes to investments in new technologies. It recently has shifted gears to boost hybrid gas-electric vehicles even as it spends billions of dollars on all-electric production. At the same time, Honda’s arms-length partnership with GM has been weakened, most recently earlier this month when their self-driving car partnership ended. GM has strengthened its ties with South Korea’s Hyundai Motor Co.

Nissan is in need of a partner to put it back on a stronger financial footing as it steps up restructuring efforts to cope with stalled revenue growth and lower profits. It faces pressure from an activist shareholder and a daunting debt load that has led to speculation in credit markets about its investment grade rating.

The Yokohama-based company has partially unwound its complex 25-year strategic partnership with Renault, a fixation of former Chairman Carlos Ghosn. Rivalries and mutual suspicion mounted over the years and came to a head when Ghosn openly contemplated a merger, contributing to his downfall.

The former chairman and CEO, who has filed a suit against his former company for ousting him in 2018, warned of a “disguised takeover” of Nissan by Honda in an August interview with Automotive News.

What’s Wrong With Nissan and How Bad Are Its Problems: QuickTake

The merger talks come after the Financial Times said last month that Nissan was looking for an anchor investor to replace part of Renault’s equity holding and that it hadn’t ruled out having Honda buy some of its shares.

–With assistance from Tsuyoshi Inajima, Chester Dawson and Nicholas Takahashi.

(Updates with comment from Honda executive and analyst, share activity.)

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