Honda and Nissan scrap merger talks

Japanese auto giants Honda and Nissan confirmed on Thursday they had scrapped merger talks that would have created the world’s third-largest automaker by unit sales.

The bid to join forces had been seen as a bid to catch up with US titan Tesla and Chinese firms in the electric vehicle market, as well as providing a lifeline to struggling Nissan.

The firms said in a joint statement that they “agreed to terminate the MOU (memorandum of understanding) signed on December 23 last year for consideration of a business integration between the two companies”.

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

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 percent plunge in first-half net profit.

Further illustrating its problems, Nissan said on Thursday that it was now expecting an annual loss of $518 million owing to slumping sales.

Japanese media reports have said the discussions unravelled after Honda proposed making its struggling rival a subsidiary instead of the plan, announced in December, to integrate under a new holding company.

The automakers confirmed in the joint statement that Honda “proposed changing the structure from establishing a joint holding company… to a structure where Honda would be the parent company and Nissan the subsidiary through a share exchange”.

Under a joint board, “the decision-making speed may slow when a tough decision is required,” Mibe said.

The automakers, however, will continue to seek “synergy effects” through a strategic partnership announced in August last year that also includes Nissan’s junior partner Mitsubishi Motors, Mibe said.

Within the partnership agreement, the companies will collaborate to thrive in “the era of intelligence and electrified vehicles, striving to create new value and maximise the corporate value of both companies”, the joint statement said.

The cancellation of the merger talks would have no impact on the earnings of both automakers, it said.

Following the announcement, French automaker Renault, which holds some 35 percent 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 earlier 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 the 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.

Nissan said Thursday it expected a net loss of 80 billion yen for the 12 months to March, sharply down from 426.6 billion yen profit achieved in the previous year.

Honda separately reported a net profit of 805.3 billion yen ($5.2 billion) for the nine months to December.

This was a 7.4 percent decline on-year chiefly due to a decline in sales in China, even though overall sales increased 8.9 percent to 16.3 trillion yen.

Honda made a slight change in its sales forecast for the full year to March, to 21.6 trillion yen from 21.0 trillion yen in the previous estimate, but kept its operating and net profit forecasts at 1.42 trillion yen and 950 billion yen, respectively.