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Big New Year deal: Nissan, Mitsubishi shares on fire on potential mega-merger with Honda

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The FeedLast Updated: Dec 18, 2024, 09:30:00 AM IST

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Synopsis

Combining resources and scale could help Honda and Nissan better compete globally.

Nissan and Honda have reportedly entered into merger talks, a move that has sent Nissan shares soaring by over 20% amid speculation about a potential mega-merger that could create an automotive behemoth. Reports indicate that Nissan and Honda are considering forming a holding company, which could eventually include Mitsubishi Motors, where Nissan holds a significant 24% stake. Mitsubishi shares soared by over 14%, while Honda's stock experienced a slight decline of around 1.6%. The companies are expected to sign a memorandum of understanding within the next week.

This reaction underscores investor optimism regarding the potential benefits of such a merger, which could create a formidable entity capable of competing with industry giants like Toyota and emerging players such as Tesla and various Chinese automakers.

Rationale behind merger

The proposed merger is a strategic response to the increasing competition in the automotive sector, particularly from electric vehicle manufacturers. Both Nissan and Honda have faced challenges in recent years, including declining profits and the need to adapt to a market that is rapidly shifting towards electrification. By merging, the two companies could pool their resources, enhance their technological capabilities, and streamline operations to better compete in the world market.

In March 2024, Honda and Nissan had already begun collaborating on electric vehicle technology, indicating a growing partnership that has now evolved into discussions of a full merger. This collaboration is part of a broader trend among automakers to consolidate in order to survive the seismic shifts in the industry.

Scale of the new entity

If the merger proceeds, the combined entity of Nissan, Honda, and Mitsubishi could achieve annual vehicle sales exceeding 8 million units, positioning it among the world's largest automotive groups. This scale would not only enhance their market presence but also provide significant leverage in negotiations with suppliers and in the development of new technologies.

Challenges Ahead

The deal, however, has significant hurdles to overcome, it would face intense political scrutiny in Japan due to potential job losses. Nissan would likely need to unwind its alliance with Renault. There are no guarantees talks will lead to a deal. Integrating two large and complex organizations with distinct corporate cultures and operational strategies can be a daunting task. Regulatory hurdles and potential antitrust concerns could also delay or derail the deal.

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