"Subsidiary Rejection" ... Nissan Officially Notifies Honda of Merger Talks Suspension

 

Honda's proposal to make Nissan a subsidiary disrupts the ambitious merger plans between the Japanese car giants

Nissan has officially informed Honda that it will halt the merger negotiations that have been ongoing since December of last year. The much-anticipated merger talks between Japan's second and third-largest automakers, Honda and Nissan, have effectively collapsed. The key issue that led to the breakdown was Nissan's rejection of Honda's proposal to make the struggling Nissan a subsidiary, a move that triggered strong opposition within Nissan.

According to local media reports, including the Yomiuri Shimbun, Nissan's CEO, Makoto Uchida, visited Honda's headquarters in Tokyo and conveyed the decision to halt merger discussions to Honda's CEO, Toshihiro Mibe. The two companies are set to hold board meetings soon to discuss the formal cancellation of the “Memorandum of Understanding” (MOU) signed in December last year, which outlined the merger's key principles.

During a board meeting held the day before, Nissan officially decided to scrap the merger talks with Honda. The primary sticking point was Honda's proposal to make Nissan a subsidiary rather than establishing a holding company, which sparked significant internal resistance at Nissan. As a result, both companies' ambitious plans to become the world's third-largest automaker, overtaking Hyundai Motor Group, have now been jeopardized.

Initially, Honda and Nissan had agreed to create a holding company, with both automakers operating as subsidiaries of the new entity. The integrated holding company was slated to launch by August next year, with the merger positioning the combined company to reach 7.35 million vehicles in sales for 2023, surpassing Hyundai's 7.3 million units.

One of the motivations behind Honda's merger proposal was to help turnaround Nissan, which has been facing operational difficulties in recent years. Honda's CEO, Toshihiro Mibe, emphasized in December that a successful merger would be contingent on Nissan’s “turnaround,” signaling that Honda was prepared to invest heavily to revive its struggling partner.

However, Nissan’s response to the merger talks was rooted in a desire for a more equal relationship, with a focus on mutual collaboration rather than one company assuming a dominant role over the other. During the announcement of the merger talks, Nissan highlighted the importance of a “balanced relationship,” which was echoed throughout their discussions.

Nissan had proposed large-scale restructuring plans, including workforce reductions in Thailand and North America, as part of a broader strategy to stabilize the company. However, Honda found these plans inadequate and demanded more significant restructuring efforts. When these demands were not met, Honda proposed a new plan to take direct control of Nissan's restructuring by making it a subsidiary, which led to a major impasse.

Industry analysts noted that Honda’s market capitalization is roughly five times larger than Nissan’s, and many believed that an equal partnership was unfeasible from a market perspective. Nissan’s longstanding corporate pride, having been in business for longer than Honda, also played a role in stalling negotiations.

The Future of Honda and Nissan: What’s Next?

With the suspension of merger talks, both Honda and Nissan face uncertain futures. The decision to pursue merger discussions came at a time when the global auto industry is undergoing unprecedented transformation, with electric vehicle (EV) manufacturers like Tesla and China’s BYD rapidly reshaping the market.

In 2023, both Honda and Nissan saw their global sales figures fall behind that of China’s BYD, which sold 4.27 million vehicles. Honda’s global sales totaled 3.8 million units, while Nissan's sales were 3.34 million units. These figures underscore the challenges faced by both companies in keeping pace with the growing dominance of EV manufacturers.

Despite the failure of the merger talks, there is still a possibility that the two companies will continue collaborating in certain areas, such as electric vehicles, batteries, and other future automotive technologies. However, the path forward remains uncertain, and it is unclear whether they can overcome the mistrust that has emerged during these negotiations.

For Honda, the collapse of the merger talks means that it will likely need to rethink its strategy for the future of mobility. The company had set an ambitious target to produce only electric vehicles and fuel cell vehicles (FCVs) by 2040, but achieving this goal will require significant investment. Experts suggest that Honda may struggle to secure the necessary resources on its own, and could be forced to reconsider its future partnership or acquisition strategies.

Additionally, Nissan’s largest shareholder, French automaker Renault, could influence Nissan’s future direction. If Renault determines that Nissan’s recovery efforts are insufficient, it may consider selling some of its Nissan shares. Taiwanese tech giant Foxconn, a key partner of Apple, is also said to be eyeing Nissan, which could lead to further changes in Nissan's corporate structure.

The situation is further complicated by Foxconn’s growing interest in entering the automotive industry, with reports suggesting that the company may soon seek a greater role in Nissan’s management. As the merger talks unravel, the focus will likely shift to Foxconn's potential involvement, which could significantly alter the balance of power in Nissan's future.

In conclusion, the cancellation of merger talks between Honda and Nissan marks a significant turning point for both companies. With shifting global market dynamics and internal challenges, it remains to be seen how these two automakers will navigate the future of the automotive industry.