Renault: What will the Honda-Nissan merger look like on the stock market?

(BFM Bourse) – The two companies announced this Monday a memorandum of understanding with a view to their merger. This operation will involve the grouping of the two companies under a joint company which will be listed on the stock exchange in the summer of 2026. If the capital terms have not been specified, Honda shareholders should own a large part of this holding company.

The Honda-Nissan merger is now on track. The two Japanese automobile manufacturers announced this Monday, December 23, after the close of the Tokyo Stock Exchange, that they had signed a memorandum of understanding aimed at forming a single company.

Furthermore, Mitsubishi, 34% of whose capital is held by Nissan, will have until the end of January to agree with the two other Japanese groups on the future terms of their collaboration.

How will this merger actually take place and what impact will the operation have on Nissan and Honda shares?

In fact, Nissan and Honda will be brought together via a joint company, a holding company, which will thus own both companies. All Nissan and Honda shares will be transferred to this holding company and the shareholders of the two groups (including Renault which still holds 35.7% of Nissan's capital) will become shareholders of this holding company. Nissan and Honda will then be subsidiaries 100% owned by this umbrella company.

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Green light expected in August 2026

According to the forecast schedule established by the two groups, Nissan and Honda plan to sign the final agreement ratifying their merger by June 2025. The boards of directors of the two Japanese companies would then validate the operation in April 2026. The company holding company would begin trading in August 2026 on the Tokyo Stock Exchange.

Logically, Nissan and Honda shares would previously be delisted from the Japanese stock exchange (since their shares will be transferred to this holding company), the two companies counting on the end of July-beginning of August 2026.

At this stage, the exact shareholding distribution of the Nissan-Honda merger has not been clarified. However, Honda wearers should be (very) in the majority. Currently, Honda weighs four times more on the stock market than Nissan (a market capitalization of around 36 billion euros compared to around 9 billion euros for the Yokohama group).

This is due in particular to Honda's best form. The latter generated an operating profit almost three times higher than that of Nissan for the financial year ending at the end of March 2024, with a margin of 7% compared to 4.5% for Nissan. In the first half of the current financial year this gap widened further (6.9% for Honda compared to 0.5% for Nissan).

According to calculations by Oddo BHF and Jefferies carried out last week, based on current valuations, Honda shareholders should hold 84% of the new group, compared to 16% for those of Nissan. Renault would see its stake rise to around 5.7% of the holding company.

A boon for Renault

As we wrote in a previous article, such an operation would be favorable to Renault, which would have more options to sell and therefore monetize the remainder of its stake in Nissan (35.7% therefore).

With a larger listed group, Renault would benefit from greater liquidity to sell its shares. According to analysts, the diamond company could also go through a “swap” mechanism, that is to say that Renault would give the new Nissan-Honda group the 17% it holds directly in Nissan (the 18, The remaining 7% are housed in a trust). In exchange, the new entity would give him back the 15% of the capital of Renault that he would have inherited from Nissan.

Renault could also, by retaining its participation, benefit from the better results expected from the new group, in particular from the synergies enabled by the operation.

Nissan and Honda indicated on Monday that they were aiming for synergies which, over a full year, would reach 1,000 billion yen, or around 6 billion euros. For example, this is much more than the approximately 3.7 billion euros that were estimated by PSA and Fiat Chrysler at the time of the announcement of their merger project at the end of 2019. Even if this figure will be raised several times subsequently, reaching around 8 billion euros.

These synergies would be generated via seven levers, such as the standardization of platforms, the pooling of R&D and sales financing functions, or even joint purchases, notably spare parts. They should enable the new Honda-Nissan group to post an operating profit of 3,000 billion yen (around 18.4 billion euros) for sales of 30,000 billion yen.

Nissan will have to recover

However, the merger project will have to go through to completion, which will depend on the approval of the regulatory authorities of each country. But not only that.

Responding to the Japanese press who see this merger as a lifeline thrown to Nissan, the general director of Honda, Toshihiro Mibe, replied that the operation did not serve “to rescue” the Yokohama group. The executive added that Nissan's implementation of a recovery plan to reduce its costs was “an absolute condition” for the merger to take place.

Makoto Uchida, Nissan's general manager, assured the Japanese press that the merger in no way meant that his group was giving up on getting back on its feet.

“Both automakers are struggling in China (interestingly, they have the same Chinese partner, Dongfeng), but Nissan is also facing major difficulties in the United States, where it has lost market share , in particular because it missed the hybrid wave (Honda was more successful in this country)”, Oddo BHF explained last week.

“As a result, both manufacturers recently decided to significantly reduce their global capacity (10% for Honda, 20% for Nissan) as part of cost reduction efforts,” added the broker.

“Given Nissan's current performance, the potential merger between Nissan and Honda is not surprising. Both companies are Japanese and have similar corporate cultures, combined with the fact that Japanese automakers have lagged behind in of electrification, the emphasis placed on hybrid and hydrogen vehicles makes this potential merger entirely logical,” explained the independent research firm AlphaValue. “Nissan, in particular, has faced weak demand in China and the United States, which makes this potential merger even more interesting,” he added.

Julien Marion – ©2024 BFM Bourse