(Bloomberg) — Honda Motor Co. and Nissan Motor Co. called into question an agreement reached less than two months ago to consider combining, casting doubt on their efforts to form one of the world’s largest automakers.
The pair are discussing various options, including the possibility of withdrawing from deal talks, according to separate statements issued Wednesday. The companies were responding to an earlier Nikkei newspaper report that said Nissan will pull out of an agreement with Honda because the two sides are unable to agree on terms.
A collapse of the discussion would spell trouble for Nissan, which was counting on its Japanese peer for a lifeline. Its standing in the global auto industry has steadily deteriorated over the last half-decade due to listless leadership and an uncompetitive product lineup. At 7.92 billion yen ($51.9 million), Honda is valued at 5 1/2 times Nissan’s market capitalization.
Honda shares rose 8.2% on Wednesday, while Nissan slumped 4.9% before the Tokyo Stock Exchange suspended trading due to the Nikkei report. Shares in France’s Renault SA, Nissan’s biggest shareholder, fell as much as 3.4% in Paris.
Honda and Nissan reiterated that they plan to make an announcement about their future around mid-February. The companies had already postponed plans to offer an update on the direction of their potential integration by the end of last month.
Friction emerged this week after several media outlets reported that Honda had floated the idea of acquiring Nissan and making it a subsidiary. That proposal was a departure from plans made public on Dec. 23 to establish a joint holding company and was met with strong opposition within Nissan.
When the companies announced their memorandum of understanding in December, Honda made clear that Nissan needed to restructure for any transaction to materialize. Bloomberg News reported last week that while Nissan will reduce output and cut jobs, its plans stop short of closing plants.
“We see a high risk of the merger being postponed because it may be difficult to confirm within six months or so the turnaround in Nissan’s earnings that is cited by Honda management as a condition for the merger,” Kohei Takahashi, a UBS Group AG analyst, wrote in a report. “Achieving complete agreement between the two companies looks challenging.”
The extent of Nissan’s plight became clear in November, when the company reported a 94% plunge in first-half net income.
Honda unveiled plans to rescue Nissan weeks later. Joining forces could help regain lost ground in the US, where the popularity of gas-electric hybrids has given an edge to Toyota Motor Corp., and in China, where waves of electric vehicles have forced foreign manufacturers to turn tail.
“Both companies lack compelling EV offerings, and the combined entity would still face the challenge of building a new EV model pipeline,” said Vincent Sun, an analyst at Morningstar Inc. “It’s difficult for Nissan if they have to play a smaller role in the new entity rather than standing on an equal footing with Honda.”
Nissan is 36% owned by Renault, which in late January sent representatives to Japan to express concern over the transaction and seek a premium for its stake, people familiar with the matter said.
Mitsubishi Motors Corp., which has reportedly decided against joining the alliance, said earlier this week it would make a final decision once Honda and Nissan reach an agreement later this month.
—With assistance from Winnie Hsu.