Nissan, Honda Explore Merger To Take On World's Biggest Carmaker

Honda Motor Co. and Nissan Motor Co. are exploring a merger, according to people familiar with the matter, that would create a singular rival to Toyota Motor Corp. in Japan and better position the combined company to face competitive challenges around the world. Shares in Nissan surged as much as 24%, their biggest intraday jump on record.

Honda is considering several options including a merger, capital tie-up or the establishment of a holding company, Executive Vice President Shinji Aoyama said on Wednesday following reports overnight of talks between the carmakers. Aoyama declined to elaborate on when a potential decision will be made.

The companies could make an announcement on Dec. 23, TBS reported. Stock in Honda fell as much as 3.4%.

The two have been holding preliminary talks about a combination, said the people, who asked not to be identified because discussions are private. One option being considered is the creation of a new holding company under which the combined businesses would operate, one of the people said. The transaction could also be expanded to include Mitsubishi Motors Corp., which already has capital ties with Nissan, the person said. Mitsubishi shares jumped 17%.

Discussions are early stage and may not lead to an agreement, the people said.

"Both players stand to gain from this merger," Vivek Vaidya, senior vice president of mobility at Frost & Sullivan, said. "The combined entity will be a complete automaker."

A deal would effectively consolidate the Japanese auto industry into two main camps: One controlled by Honda, Nissan and Mitsubishi and another consisting of Toyota group companies. It would also provide them with more resources to compete with larger peers globally after downsizing long-held partnerships with other carmakers. Nissan has loosened ties with France's Renault SA and Honda has backed away from General Motors Co.

Toshihiro Mibe, right, speaks next to Makoto Uchida, during a joint news conference in Tokyo in August.

The move toward a merger would follow a decision by the two companies earlier this year to work together on electric vehicle batteries and software. At that time, Honda Chief Executive Officer Toshihiro Mibe floated the possibility of a capital tie-up with Nissan.

"If the merger does materialize, it would provide short-term relief for Nissan's financial struggles," said Bloomberg Intelligence senior auto analyst Tatsuo Yoshida.

The two Japanese carmakers plan to sign a memorandum of understanding to discuss shared equity stakes in a new holding company, the Nikkei reported earlier in the day. The merger would help the manufacturers compete against rivals in electric vehicles such as Tesla Inc. and Chinese automakers, it said.

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