Honda and the financially troubled Nissan have announced plans to merge, with Mitsubishi Motors expected to decide on its participation within the month. While speculation suggests the Honda-Nissan merger talks aim to prevent Foxconn from gaining involvement with Nissan, past acquisitions involving Japanese corporations have yielded mixed results, potentially influencing the outcome of this proposed merger.
Foxconn is reportedly seeking to acquire Renault Group's shares in Nissan, which would grant it participation in Nissan's management and decision-making processes. In what appears to be a defensive move, Nissan has opted to pursue a merger with Honda.
At the merger announcement press conference on December 23, 2024, both Honda and Nissan downplayed Foxconn's potential involvement. Notably, Nissan denied any acquisition-related contact with Foxconn and expressed reluctance to discuss the matter further.
The Memorandum of Understanding (MOU) signed between Honda and Nissan includes an exclusivity agreement prohibiting either party from negotiating operational mergers with third parties. Violation of this contract would result in a penalty of JPY100 billion (US$636.23 million). This provision appears strategically designed to prevent foreign influence, including from Foxconn, on their merger process.
Historical precedents shape current decisions
The strategic choices made by Nissan and Honda likely reflect lessons learned from Foxconn's acquisition of Sharp Corporation.
Between 2015 and 2016, Sharp, then struggling financially, sought funding from a government-led fund to merge its LCD panel production business with Japan Display Inc. (JDI). Foxconn emerged as a willing investor, securing priority negotiation rights by offering favorable terms, including commitments against selling Sharp's operations or implementing large-scale layoffs. The acquisition was completed in 2016.
Initially, Sharp achieved profitability under Foxconn's management and cost control measures. However, after reintegrating the previously separated Sakai Display Products (SDP) LCD panel factory as a wholly-owned subsidiary, the company returned to financial distress due to the challenging LCD panel business.
This experience likely influenced discussions regarding Nissan's choice between merging with Honda or accepting Foxconn's involvement.
Limitations of the Japanese conglomerate model
The Japanese conglomerate approach also presents cautionary tales. JDI, formed by merging the display panel divisions of Sony, Toshiba, Hitachi, and Panasonic, embodied Japan's display industry consolidation strategy. However, it is now approaching its eleventh consecutive year of losses. Even after its acquisition by American fund Ichigo, profitability remains uncertain, demonstrating that foreign ownership doesn't guarantee recovery.
Elpida Memory provides another instructive example. Created through the merger of Hitachi and NEC's DRAM divisions, and later incorporating Mitsubishi Electric's DRAM business, Elpida received government support but ultimately filed for bankruptcy. The company was subsequently acquired by American memory manufacturer Micron Technology. Today, Elpida's former Hiroshima DRAM plant serves as one of Micron's major production sites, suggesting that the Japanese conglomerate model may not offer Nissan a viable path to operational stability.
Japanese manufacturers are at a critical crossroads, having to choose between domestic consolidation for survival or accepting foreign leadership from entities like Foxconn. For automakers and their supply chains, neither option guarantees success, leaving them to determine the most viable strategy for their current circumstances.