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

Japanese automakers Nissan and Honda on Monday announced they had entered into official talks to merge and create the worldâ€s third-largest automaker by sales.

In a news conference on Monday, Honda CEO Toshihiro Mibe said the companies needed greater scale to compete in the development of new technologies in electric vehicles and intelligent driving. A business integration would give the companies an “edge that will not be possible under the current collaboration framework,� Mibe said, according to a translation.

The deal would aim to share intelligence and resources and deliver economies of scale and synergies while protecting both brands, he said.

A holding company would be formed as the parent company of both Honda and Nissan, listed on the Tokyo Stock Exchange. The larger Honda will nominate most of the integrated entityâ€s board members. The merged group has the potential to deliver revenue of 30 trillion yen ($191.4 billion) and operating profit of more than 3 trillion yen, he said.

Honda reported 1.382 trillion yen in operating profit for the full year to March 2024, versus Nissanâ€s 568.7 billion yen. The companies would have a combined value of nearly $54 billion, with Hondaâ€s market capitalization contributing the greater $43 billion share.

Discussions are set to conclude in June 2025.

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

Nissanâ€s strategic partner, Mitsubishi, has been offered the chance to join the new group and will take a decision by the end of January 2025.

The companies are grappling with intense global competition in the EV market from the likes of Tesla and Chinaâ€s BYD. The high cost of the EV transition for legacy companies has long been expected to drive industry consolidation.

Japanâ€s Toyota is the worldâ€s biggest automaker by sales, followed by Germanyâ€s Volkswagen. A Nissan-Honda tie-up would see the group overtake South Koreaâ€s Hyundai.

The proposed deal was first reported by Japanâ€s Nikkei newspaper on Dec. 17.

Nissan shares spiked after the initial report of a merger. Analysts say the potential tie-up is a result of financial underperformance at the company and of the restructure of its long-standing partnership with Franceâ€s Renault.

In its most recent quarterly results, Nissan said it would cut 9,000 jobs and reduce global production capacity by a fifth.

Honda CEO Mibe on Monday said some of the companyâ€s shareholders may feel that the deal would represent Honda supporting Nissan, but noted the merger was “based on the assumption that Nissan completes its turnaround action.â€�

“If Nissan and Honda fail to stand on their own feet the business integration talks will not come to fruition,� he said.

Nissan CEO Makoto Uchida told reporters that the discussion of integration did “not mean we have given up on a turnaroundâ€� and was instead about ensuring the companyâ€s competitiveness for the future.

“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,� he added.

Nissan has “been struggling in the market, itâ€s been struggling at home, it doesnâ€t have the right product lineup,â€� Peter Wells, professor of business and sustainability at Cardiff Business Schoolâ€s Centre for Automotive Industry Research, told CNBCâ€s “Street Signs Europeâ€� last week.

“There are so many warning signs, so many red flags around Nissan at the moment that something had to happen. Whether this is the answer is another question,� Wells added.

Shares of Renault closed 1.2% higher on Monday. The company directly holds a 17% stake in Nissan and owns another 18.7% via a French trust, while Nissan is a strategic investor in Renaultâ€s EV and software entity Ampere.

In Asia trade, Nissan shares closed 1.2% higher ahead of the announcement, with Honda up 3.8% and Mitsubishi finishing 0.6% higher.

— CNBCâ€s Ruxandra Iordache and Sam Meredith contributed to this story.