Honda Nissan merger would be mostly positive for Renault: Jefferies

Investing.com — According to a report by , Honda (NYSE:) and Nissan (OTC:) Motor (TYO:) are considering entering negotiations for a potential merger, which could also involve Mitsubishi Motors Corp. (TYO:), in which Nissan holds a roughly 24% stake.

A merger between Honda and Nissan would result in a company valued at $54 billion, with an annual production of 7.4 million vehicles. This would position the combined entity as the third-largest automotive group globally by sales volume, following Toyota (NYSE:) and Volkswagen (ETR:).

Japan-listed shares in Nissan and Mitsubishi Motor surged 23% and 19% on Wednesday, respectively, while Honda fell 3%. 

The two companies had already established a strategic collaboration in March to advance electric vehicle (EV) development. However, Nissan’s increasing financial and strategic challenges in recent months have heightened the need for closer ties with its larger competitor, Honda.

For Renault (EPA:), a major Nissan shareholder, the deal would have “mostly positive implications” including “a number of benefits and strategic options,” Jefferies analysts said.

The French automaker’s shares jumped more than 5% in European trading. 

Among the potential benefits, they highlight the opportunity for a higher Nissan share price and improved liquidity through the sale of Nissan’s 18.7% stake, valued at €1.33 billion, to Honda or other investors, though tax-related considerations could delay the process.

They also point to Renault holding a smaller minority stake in the merged entity, with synergies and improved returns, including ongoing cooperation and contract manufacturing arrangements. Honda’s cessation of production in Europe could enhance these collaborative opportunities.

Furthermore, the analysts note a potential share swap within the cross-shareholding structure, which could effectively act as a 15% buyback for Renault without requiring cash.

At the same time, they caution that Renault could face the downside of holding a small, illiquid stake in the merged entity, potentially limiting its influence.

Jefferies estimates that, under a nil-premium merger scenario based on current closing prices, Honda shareholders would control approximately 84% of the combined equity, while Renault’s 35.8% stake in Nissan, valued at €2.78 billion, would be diluted to a 5.8% stake, with 2.8% linked to its core holding and 3% attributed to shares held for sale.

“The combination of Honda, Nissan and MMC would create a top 3 OEM with 8m units and a global footprint, continuing the consolidation of the Japanese OEM into 2 main groups, improving scale across regions, and accelerating technology developments in EVs, AVs and software,” analysts led by Philippe Houchois concluded.