Honda Explores Nissan Rescue With Foxconn Also in Hunt for Stake

(Bloomberg) — Honda Motor Co. is in talks to come to the aid of Nissan Motor Co. by potentially forming the world’s third-largest carmaker in order to better withstand escalating challenges for the global auto industry.

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The two Japanese manufacturers have engaged in merger discussions that appear to have accelerated after Hon Hai Precision Industry Co., the Taiwan-based producer of iPhones known as Foxconn, approached Nissan about acquiring a stake in the company, a person familiar with the matter said. Foxconn has been investing heavily in factories to build EVs.

Nissan shares — which had lost two-thirds of their value since the arrest of former Chairman Carlos Ghosn in late 2018 — jumped a record 24% in Tokyo trading Wednesday. Honda’s stock fell 3% to its lowest closing price in over a year.

Nissan’s years of simmering issues boiled over in early November, when the company slashed earnings forecasts and said it would have to cull 9,000 jobs globally. The automaker also announced a 20% cut to global output as consumers turn their backs on its lackluster lineup, leaving its models to gather dust at dealerships.

Various entities have circled Nissan since then, including several activist investors that have built positions in the stock. Honda’s market value is more than four times greater than Nissan’s, despite the former making only marginally more cars. This indicates Honda would have the upper hand in talks about a potential deal that the company describes as a merger.

Renault SA will also necessarily have a say in any deal, considering it owns 36% of Nissan — a holdover from a longstanding alliance between the French automaker, Nissan and Mitsubishi Motors Corp. Renault is open to Nissan pursuing a potential merger with Honda, as the discussions could insulate Renault from the crisis plaguing its partner, according to people familiar with the situation.

It’s unclear whether Nissan is also in talks with Foxconn or already rebuffed its overture.

A spokesperson for Nissan declined to comment. A representative for Foxconn wasn’t immediately available for comment. Honda Executive Vice President Shinji Aoyama said the carmaker is considering several options that may also involve a capital tie-up or establishment of a holding company under which the combined businesses would operate.

A Honda-Nissan transaction could be expanded to include Mitsubishi Motors, which already has capital ties with Nissan, a person familiar with the talks said.

An announcement by Honda and Nissan could come as soon as on Dec. 23, Japanese broadcaster TBS reported Wednesday. The duo plan to sign a memorandum of understanding to discuss shared equity stakes in a new holding company, the Nikkei first reported Tuesday.

The Nikkei suggested that Foxconn’s interest in Nissan accelerated the Honda-merger efforts out of fears that the Japanese company may be vulnerable to a takeover by the Taiwanese firm.

A similar dynamic is playing out with one of Japan’s largest consumer brands, Seven & i Holdings Co. Its founding family is leading a consortium to take the company private in order to fend off a buyout proposal from Canada’s Alimentation Couche-Tard Inc.

A merger between Honda and Nissan would effectively consolidate the Japanese auto industry into two main camps: One controlled by Honda, Nissan and Mitsubishi, and another consisting of Toyota Motor Corp. and various peers that the company owns stakes in.

Nissan and Honda are facing challenges globally, but are particularly challenged in China. Both are suffering at the hands of wildly popular local manufacturers led by BYD Co., as well as Elon Musk’s Tesla Inc. The shift toward electrification — which is happening at varying speeds in different markets — is disrupting business models that have been in place for decades.

Honda, Nissan and Mitsubishi combined sold about 4 million vehicles globally in the first six months of the year, well shy of the 5.2 million that Toyota sold on its own.

Combining forces would allow the two companies to fend off Toyota, the world’s largest automaker, at home and abroad. Toyota has taken stakes in Subaru Corp., Suzuki Motor Corp. and Mazda Motor Corp., creating a powerhouse of brands backed by its top-notch credit rating.

“There are just too many Japanese carmakers, and mergers are becoming necessary to become more competitive, globally,” said Hiroki Ihara, an analyst at Tachibana Securities Co.

For Foxconn, taking a controlling stake in a Japanese firm wouldn’t be unprecedented. In 2016, it took a two-thirds holding in electronics maker Sharp Corp., handing it a number of benefits including a well-known consumer electronics brand, LCD display production capacities and intellectual property. It’s been reducing that interest slowly over time, but is still the top shareholder.

Japanese business publication Diamond Online first reported Foxconn’s proposal earlier Wednesday.

–With assistance from Jane Lanhee Lee, Tsuyoshi Inajima, Nicholas Takahashi, Shadab Nazmi, Yasufumi Saito, Albertina Torsoli, Stefan Nicola and Craig Trudell.