Mega merger of Honda and Nissan officially scrapped

Months after two of the largest car makers announced they were joining forces, an “unacceptable” disagreement has seen the deal called off.

Two of the world’s largest carmakers have called off a multi-billion dollar merger after one of the suitors said the conditions of the deal were “unacceptable”.

On Thursday, Tokyo time, Japanese car giants Honda and Nissan said a merger announced in December was now scrapped. It would have created the world’s third largest automaker worth some $95 billion.

Now a question mark hangs over the future of Nissan, the smaller car maker.

Honda’s main models in Australia include the HR-V, CR-V, Accord and Civic. Nissan sells the Qashqai, X-Trail, Navarra and Leaf vehicles in Australia.

“Honda and Nissan today agreed to terminate the Memorandum of Understanding regarding the consideration of the Business Integration of the Companies,” the firms jointly announced on Thursday.

A huge sticking point was how the two companies would come together.

Nissan, the smaller of the two, had thought it would be a straight merger. However, during discussions, Honda said it preferred a model where Nissan would become a subsidiary of it.

“Various options were considered regarding the structure of Business Integration, including Honda’s proposal to change the scheme of Business Integration to a stock swap, which would make Nissan a wholly owned subsidiary of Honda,” the statement staid.

“As a result of these discussions, the Companies decided to discontinue the discussion”.

The Nissan Qashqai Ti.

‘Unacceptable’

It’s been reported byThe Wall Street Journal that Nissan had a simpler way to describe Honda’s new terms: “Unacceptable”.

The merger had been seen as a way for the two car companies to more effectively compete with emerging Chinese car makers and invest more in electric vehicles.

The announcement did say that Honda and Nissan intended to continue to pursue their “strategic partnership” on electric cars.

“That the both companies were not able to reach an agreement is very regrettable,” Honda’s CEO and president Toshihiro Mibe told reporters.

Mr Mibe insisted in December that any merger would not be a bailout for Nissan, which announced last year thousands of job cuts after reporting a 93 per cent plunge in first-half net profit.

Honda HR-V. Photo Source: Supplied

Nissan’s woes

Nissan said on Thursday that it was now expecting an annual loss of $820 million owing to slumping sales.

Nissan’s CEO Makoto Uchida said “given the performance of the company, there is a difficulty to stand alone” and Honda’s proposal was “carefully discussed”.

But, he said, “We could not accept this proposal as we were not sure how much our autonomy would be kept and if Nissan’s potential would be maximised”.

Following the announcement, French automaker Renault, which holds about 35 per cent of shares in Nissan, said it welcomed “Nissan’s intention to focus first and foremost on the execution of its turnaround plan”.

It said it would “continue to support Nissan in its ongoing projects”.

The head of Taiwanese tech giant Foxconn said this week it was open to buying Renault’s stake in Nissan after reports last year said it had made an approach for the company.

Analysts have said both firms will need to seek alternative partners in the long term, to strengthen competitiveness in the technology race, and Foxconn could be an option.

Makoto Uchida (L), president and CEO of Japanese automaker Nissan, and Toshihiro Mibe (R), director, president and representative executive officer of automaker Honda. (Photo by Richard A. Brooks / AFP)

Downfall on a merger

Rumours the potential merger was in trouble surfaced earlier this month when it emerged Honda was looking to restructure what had been a “merger of equals” according to Nissan.

Japan’s Nikkei business daily had said at the time that Nissan was vehemently against becoming the minor partner.

Meanwhile, UK newspaper Financial Times said that Nissan thought Honda had become suddenly “aggressive” which was potentially because it was looking for a way to back out of the deal.

Russ Mould, an investment director at online investors AJ Bell. said earlier this month that Honda’s moves meant the deal was “falling apart”.

“Honda executing a three-point turn to propose Nissan becomes a fully owned subsidiary rather than bringing both names together under a jointly owned holding company means already fractious talks on the tie-up may have run out of road.

“Nissan’s negotiating position hasn’t been helped by its weak financial performance which has seen its market value plummet.”

Originally published as Mega merger of Honda and Nissan officially scrapped