Merger of equals on a knife edge?

Reports suggest Nissan is set to call off talks with compatriot Honda over a merger of the two Japanese powerhouses. So does this mean the end of the Niss-da/Hond-an amalgamation? Both are saying an announcement is only a few weeks away. 

The two firms have been considering a merger of their operations. The intention was to agree on a final structure by midyear. It is understood the two brands would have remained separate but a joint venture would have adopted shared platforms and powertrains. Many of their production operations would have merged. It also would have created one of the world’s largest car firms. The idea was that it would then be in a position to compete head on with Chinese auto makers. 

However, Japanese newspaper Nikkei has now reported that Nissan will withdraw from the deal. That’s because of growing differences between the two firms on how the merger might work. 

The Financial Times also reported that Nissan bosses were angered by an unexpected proposal from Honda. Instead of forming a joint holding company, Nissan would effectively become a fully owned subsidiary of Honda. Nissan sources told FT this was a final offer by the bigger firm.

Evidently Honda suggested the deal because of its higher market capitalisation. The valuation of the two firm’s respective assets is said to have been a sticking point throughout the talks. Honda’s market capitalisation is around four times that of Nissan’s. Thus, Honda felt it had the right to take a leading role in the deal, rather than the proposed ‘merger of equals’.

Renault, which holds just over one-third of Nissan’s shares, urged its Alliance partner to secure a better deal if Honda were to take a leading role in the tie-up.

Nissan shares dropped by over four per cent following the Nikkei report, while Honda’s share price rose around eight per cent.

Nissan and Honda both released statements to Reuters saying that the Nikkei report was inaccurate and that they were aiming to “finalise a future direction” within a few weeks.