Honda and Nissan have officially begun merger talks to create the world’s third-largest automaker

Japanese automakers Nissan and Honda announced Monday that they have entered into formal merger talks Creating the world’s third largest automaker in terms of sales.

At a press conference on Monday, Honda CEO Toshihiro Mebe said companies need greater scale to compete in developing new technologies in electric vehicles and smart driving. Business integration will give companies “an advantage that would not be possible under the current cooperation framework,” Meby said, according to a translation.

He said that the deal will aim to exchange information and resources and achieve economies of scale and synergies while protecting the two brands.

A holding company will be formed as the parent company for both Honda and Nissan, which are listed on the Tokyo Stock Exchange. The larger Honda will nominate most of the board members of the integrated entity. He said the combined group has the potential to generate revenues of 30 trillion yen ($191.4 billion) and operating profits of more than 3 trillion yen.

Honda I mentioned 1.382 trillion yen in operating profit for the full year through March 2024, compared to 568.7 billion yen for Nissan. The companies’ total value will be approximately $54 billion, with Honda’s market capitalization contributing a larger share of $43 billion.

Discussions are scheduled to end in June 2025.

If the integration is approved, it will be a medium to long-term project, which is currently not expected to show significant progress until 2030 and beyond, Meeby added.

Mitsubishi, Nissan’s strategic partner, has been offered the opportunity to join the new group and will make a decision by the end of January 2025.

Companies face intense global competition in the electric vehicle market from the likes of… Tesla And the Chinese company BYD. The cost of transitioning to electric vehicles has always been high for legacy companies It is expected to drive industry consolidation.

Japan Toyota It is the world’s largest automaker by sales, followed by Germany Volkswagen. The alliance between Nissan and Honda will see the group surpass South Korea’s Hyundai.

The deal was proposed This was first reported by the Japanese newspaper Nikkei On December 17th.

Nissan shares rose after the initial report on the merger. Analysts Say possible correlation It is a result of Poor financial performance In the company and Restructuring its long-term partnership With France Renault.

In its latest quarterly results, Nissan He said It will cut nine thousand jobs and reduce global production capacity by a fifth.

Honda CEO Maebe said on Monday that some of the company’s shareholders may feel that the deal would represent Honda’s support for Nissan, but he noted that the merger “is based on the assumption that Nissan completes the transformation procedures.”

“If Nissan and Honda fail to find their feet, business integration talks will not bear fruit,” he said.

Nissan CEO Makoto Uchida told reporters that discussing integration “does not mean we have given up on transformation” but was instead about ensuring the company’s competitiveness in the future.

He added: “After making this transformational action for future development, future growth, we need to look at the ultimate size and growth. This growth will be through partnerships.”

Nissan is “struggling in the market, struggling internally, and doesn’t have the right product portfolio,” Peter Wells, professor of business and sustainability at the Center for Automotive Industry Research at Cardiff Business School, told CNBC.Street signs europe“Last week.

“There are a lot of warning signs, a lot of red flags around Nissan right now that indicate something needs to happen. Whether that’s the answer is another question,” Wells added.

Renault shares fell 1.2% in mid-morning European trading on Monday. The company directly owns A 17% share In Nissan, it owns a further 18.7% via a French trust, while Nissan is a strategic investor in electric car company Renault and software entity Ampere.

In Asian trading, Nissan shares closed up 1.2% before the announcement, with Honda shares rising 3.8%, and Mitsubishi shares ending up 0.6%.

— CNBC’s Roksandra Iordas and Sam Meredith contributed to this story.