Nissan and Honda in merger talks to form third-largest automaker

Investing.com -- Nissan (OTC:NSANY ) Motor Co. is reportedly in discussions with Honda Motor Co (NYSE:HMC ). about a potential merger. The deal, if successful, could lead to the creation of the world's third-largest automaker and could potentially provide Nissan with the necessary support to withstand the challenges currently facing the industry.

The discussions between Nissan and Honda seem to have gained momentum following the approach by Taiwan's Hon Hai (TW:2317 ) Precision Industry Co., also known as Foxconn (SS:601138 ). Foxconn, known for producing iPhones, had reportedly expressed interest in acquiring a stake in Nissan and has been heavily investing in factories for electric vehicle (EV) production, according to an individual familiar with the matter.

Nissan's difficulties became public in early November when it drastically reduced its profit forecast and announced plans to cut 9,000 jobs worldwide. The company also announced a 20% reduction in global production as consumer interest in its current vehicle lineup waned, leading to an accumulation of Nissan models at dealerships.

Since these announcements, various entities, including activist investors, have shown interest in the struggling carmaker. Despite producing slightly more vehicles, Honda's market value is over four times that of Nissan, which could give Honda an advantage in the merger discussions. These talks could potentially involve complex issues such as potential layoffs in Japan.

French automaker Renault SA (OTC:RNLSY ), which owns a 36% stake in Nissan due to a longstanding alliance with Nissan and Mitsubishi Motors Corp. (TYO:7211 ), will also have a say in any potential deal. According to sources familiar with the situation, Renault (EPA:RENA ) is open to Nissan engaging in merger discussions with Honda as it seeks ways to shield itself from the crisis affecting its partner.

It remains unclear whether Nissan is also in talks with Foxconn or if it has already declined the company's proposal.

When approached for comments, a spokesperson for Nissan declined to comment while a representative for Foxconn was not immediately available. Honda's Executive Vice President Shinji Aoyama stated that the carmaker is considering several options which may involve a capital tie-up or the establishment of a holding company.

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Source: Investing.com