Honda and Nissan officially begin merger talks to create the world’s third-largest automaker

Japanese automakers Nissan and Honda announced on Monday that they have entered into formal talks to merge to create the world’s third largest automobile manufacturer by sales.

Honda CEO Toshihiro Mibe said at a press conference on Monday that companies need greater scale to compete in the development of new technologies in electric vehicles and intelligent driving. According to Mibe, the business integration will give the companies “an advantage that would not be possible within the framework of existing cooperation”.

The purpose of the agreement is to share intelligence and resources and provide economies of scale and synergy while protecting both brands.

A holding company will be created as the parent company of both Honda and Nissan, which are listed on the Tokyo Stock Exchange. Greater Honda will nominate a majority of the board members of the integrated entity. The combined group has the potential to generate 30 trillion yen ($191.4 billion) in revenue and more than 3 trillion yen in operating profit.

Honda informed 1.382 trillion yen in operating profit for the full year to March 2024, versus Nissan’s 568.7 billion yen. The combined value of the companies will be about $54 billion, and Honda’s market capitalization will be more than $43 billion.

Discussions are scheduled to be concluded in June 2025.

Mibe added that if approved, the integration would be a medium to long-term project and is currently not expected to make visible progress until 2030 and beyond.

Nissan’s strategic partner Mitsubishi has been given the chance to join the new group and will make a decision by the end of January 2025.

Companies are facing intense global competition in the EV market Tesla and China’s BYD. The high cost of the EV transition has long been the case for legacy companies is expected to spur industrial consolidation.

of Japan Toyota is the world’s largest car manufacturer by sales, followed by Germany Volkswagen. At the Nissan-Honda junction, the group will overtake South Korea’s Hyundai.

It was a proposed contract This was first reported by the Japanese newspaper Nikkei on December 17.

Nissan shares rose after the initial news of the merger. Analysts tell the potential connection is the result financial weakness in the company and rebuilding a long-term partnership with France Renault.

Nissan in its latest quarterly results he said It will cut 9,000 jobs and reduce global manufacturing capacity by a fifth.

On Monday, Honda CEO Mibe said that some of the company’s shareholders may think the deal would represent Honda supporting Nissan, but noted that the merger “is based on the assumption that Nissan has completed its turnaround.”

“If Nissan and Honda cannot stand on their own two feet, business integration talks will not work,” he said.

Nissan CEO Makoto Uchida told reporters that the integration discussion “doesn’t mean we’re giving up on turnaround” and instead is about ensuring the company’s competitiveness for the future.

“Once we make this pivot move for future development, future growth, we need to look at ultimate size and growth. That growth will be through partnerships,” he said.

“Nissan is struggling in the market, it’s struggling at home, it doesn’t have the right product line-up,” Peter Wells, professor of business and sustainability at Cardiff Business School’s Center for Automotive Industry Studies, told CNBC.European street signs“last week.

“There are so many warning signs, so many red flags around Nissan right now that something had to happen. Whether that’s the answer is another question,” Wells added.

Shares in Renault were down 1.2% in early European trading on Monday. The company directly a 17% stake It is in Nissan and another 18.7% is owned by a French trust, while Nissan is a strategic investor in Ampere, Renault’s EV and software venture.

In Asian trade, Nissan shares were up 1.2%, Honda was up 3.8% and Mitsubishi was up 0.6% before the announcement.

— CNBC’s Ruxandra Iordache and Sam Meredith contributed to this story.