Honda's Offer Process to Nissan
Last year, Japanese automaker Honda made a lifeline offer to Nissan, valued at $60 billion, to help both Japanese automakers compete with Chinese brands that have been disrupting the auto industry. After years of declining sales and management turmoil, Nissan had become a weakling after underestimating demand for hybrid vehicles, particularly in the United States, its biggest market. But the merger talks fell apart in less than a month when Honda abruptly revised the terms and suggested Nissan become a subsidiary, citing Nissan’s pride and lack of concern about its current situation, according to six people familiar with the matter.
Nissan, Japan's second-largest automaker behind Toyota until 2020, insisted on equal treatment in the talks despite its weaker position, three of the people said.
Pressure on Nissan
Honda has been pressuring Nissan to make deeper cuts in workforce and factory capacity, but Nissan is unwilling to consider politically sensitive plant closures, three sources said. Nissan has given the impression that it can recover on its own, despite its growing difficulties. That intransigence, combined with what Honda management sees as Nissan’s slow decision-making, has prevented a deal that would have created one of the world’s largest automakers from happening.
The situation also sheds new light on the thinking inside Nissan, which is facing a deepening crisis. The automaker is facing the threat of U.S. tariffs on vehicles made in Mexico, which accounts for more than a quarter of its U.S. sales. Both Nissan and Honda are scheduled to report earnings on Thursday.
“I think it’s a management issue. They are completely overestimating their position, their brand value and their ability to turn the business around,” Julie Boote, an analyst at research firm Pelham Smithers Associates, said of the turmoil at Nissan. Nissan and Honda declined to comment on specific aspects of the talks reported by Reuters sources. Nissan CEO Makoto Uchida visited his counterpart Toshihiro Mibe last week to say he wanted to end the talks after Honda made a bid for a stake. Both automakers said they would provide an update this month.
70 Percent Drop
Nissan surprised investors in November by cutting its profit forecast by 70% on deteriorating sales in China and the United States. The company announced a turnaround plan that included cutting 9 jobs and reducing a fifth of global capacity, but some analysts called it inadequate and too little too late. Uchida pledged to forego half his salary and said he was focused on making the business leaner and more resilient.
In December, Nissan and Honda announced plans to merge, the culmination of talks they have been holding since March 2024 in which they said they wanted to collaborate on technology. But the merger talks quickly hit a wall over calculating the shareholding ratio for the combined company, two people said. One of the people said Uchida privately expressed doubts about the deal’s viability. Four people said Honda executives complained that Nissan’s decision-making process was too slow.
A public update on the talks was initially scheduled for the end of January but has been postponed until mid-February, the two sources said. Honda executives felt Nissan’s turnaround strategy lacked detail and were frustrated by what they saw as insufficient reductions in factory capacity. Reuters could not determine whether Honda had requested a specific number of layoffs or identified specific factories for the reduction. One person said Nissan did not want to close factories because that would erode their paper value and hurt its earnings. The layoffs already promised as part of Nissan’s turnaround plan amount to 7% of its global workforce. Honda has cut more jobs in China than in the past two years, the person said.
Memorandum of Understanding
A person familiar with Nissan’s thinking said Honda appeared reluctant to budge on its plans and hinted that it did not see Nissan as an equal. In late January, Nissan executive Hideyuki Sakamoto visited the southwestern island of Kyushu to unveil plans for an electric battery factory that would create 500 jobs. Flanked by local politicians, Sakamoto said the automaker would not reduce capacity at its existing Kyushu plant. He stressed that Kyushu was “a very competitive base from a geopolitical perspective” and important for future electric vehicle plans.
The day after Sakamoto’s visit to Kyushu, Honda’s Mibe told Uchida that Nissan should become a Honda subsidiary, a condition not included in the original merger memorandum the two companies signed late last year, according to one person. Reuters could not determine whether Mibe’s move was prompted by Nissan’s statements in Kyushu. But the Kyushu trip highlighted tensions between the companies over the best path forward. Kyushu was not the only plant Nissan sees as untouchable. Smyrna in Tennessee, Aguascalientes in Mexico and Sunderland in England are critical to the company’s electric vehicle strategy and the automaker does not want to close them or reduce its lines, the source said.
Honda’s sudden change in structure of the deal reflected growing impatience with the pace of negotiations with Nissan, two people said. Nissan was caught off guard by the move because it went against previously agreed understandings, one person said. Inside Nissan, the offer was seen as “outrageous” and an insult to the legacy automaker’s reputation. Renault, Nissan’s largest shareholder, said it was not aware of the talks but said recent information suggested the transaction would result in “a Honda takeover of Nissan without a control premium for Nissan shareholders.” Renault said such an outcome was “unacceptable,” adding that it would “vigorously defend” its interests.
New Partners
If both companies agree to end talks, neither would be responsible for a 100 billion yen ($650 million) exit fee, according to a December memorandum of understanding. Nissan is open to working with new partners, including Foxconn, a Taiwanese contract manufacturer that makes Apple’s iPhones, according to Reuters. Foxconn did not respond to a request for comment. Foxconn Chairman Young Liu said on Wednesday that the aim was to cooperate with Nissan, not buy it. The Taiwanese company’s electric vehicle business is run by former Nissan executive Jun Seki, who was at one point seen as a candidate to become the automaker’s CEO.
Amir Anvarzadeh, a strategist at Japanese equity consultancy Asymmetric Advisors, said Foxconn would be a more generous bidder than Honda because the auto industry needs a brand name and Nissan could be attractive. “Whatever you think of their cars and their balance sheet, at least the brand is still very recognizable,” Anvarzadeh said. The Japanese government has so far not said much about how it views the breakdown of talks between Honda and Nissan, or whether it would be open to Foxconn, which is also the largest shareholder of consumer electronics company Sharp Corp, buying Nissan. Boote said the real question for Nissan now is what its management will do. “They don’t have a realistic view of what’s going on in the auto industry and what really needs to happen at Nissan.”
