DaimlerChrysler, Nissan Deal Is Stuck in Neutral
DaimlerChrysler’s bid to acquire a stake in Nissan Motor Co. failed to produce an agreement Friday despite top-level executive meetings this week, but both companies left the hood and side doors open for further progress.
DaimlerChrysler Co-Chairmen Robert J. Eaton and Juergen E. Schrempp held discussions with Nissan President Yoshikazu Hanawa in Tokyo that the companies characterized as “constructive” regarding both the diesel truck and passenger vehicle arms of Japan’s No. 2 auto maker. Officials of both companies said no decision was reached, although talks will continue.
Investors seem to believe a deal is imminent. Nissan shares have risen more than 25% in recent weeks, including a 3.6% jump Friday to close the week at $3.71. Nissan’s American depositary receipts, each worth two ordinary shares, rose 66 cents to close at $8 on the New York Stock Exchange.
Schrempp all but said he wants to complete a deal to round out the company’s global arsenal. Last year’s merger of Daimler-Benz of Germany and Chrysler Corp. of the U.S. gives the combined giant $132 billion in annual revenue and a full lineup of passenger vehicles, high-end luxury cars, sport-utility vehicles and heavy trucks as well as aerospace technology. But small passenger cars and a major Asian presence remain weak spots in a portfolio DaimlerChrysler clearly hopes will dominate the industry.
Although DaimlerChrysler could build these operations from the ground up, acquiring Nissan would fill the gap more quickly at a time of rapid industry consolidation.
“We’re very impatient,” Schrempp said at a news conference Friday. “The difficulty is the time.”
But Nissan’s consolidated debt of $37.7 billion represents a major impediment. One European investment banker also said that although Nissan’s Hanawa has welcomed foreign partners, his top lieutenants are opposed to an outsider stake and believe that the company should go it alone. Other issues holding up a deal, analysts said, may include a competing bid from France’s Renault and rich terms sought by Nissan.
DaimlerChrysler has been in discussions to acquire part of Nissan Diesel for months, but reports of talks about the passenger car operation surfaced only recently. Nissan said in a statement Friday that it welcomes bids from companies other than DaimlerChrysler.
Stephen C. Usher, senior analyst with Jardine Fleming, said a partial sale of Nissan Diesel would do little to improve Nissan’s cash flow but would help the parent company manage its debt.
New Japanese accounting rules being phased in will require companies to include subsidiary results on the parent company’s balance sheet--a relatively new concept in a nation that has hidden many financial problems through subsidiaries. Selling Nissan Diesel will allow the parent to avoid showing $800 million to $2.4 billion more in debt held by subsidiary distributors, Usher said.
Schrempp and Eaton met the press at an exhibition introducing the merged DaimlerChrysler to Japan, held in Tokyo’s flashy Ginza district just blocks from Nissan headquarters, replete with thundering classical music, multimedia displays, museum-style lighting and stages showcasing vehicles ranging from Jeeps to helicopters.
The biggest forces driving the auto industry’s headlong rush to merge, partner and otherwise consolidate are enormous overcapacity, escalating development costs for new models and a growing disparity between those with cash hoards and those without. Eaton said worldwide overcapacity is now between 20 million and 23 million vehicles annually and that at least six merger or partnership talks are underway globally.
But bringing together often diverse national and corporate cultures is not easy. Mazda Motor Corp. has been a front-runner in trying to bridge this gulf, given Ford Motor Co.’s controlling 33.4% stake in the Japanese company.
Mazda President James E. Miller said in a separate meeting Friday that many companies appear to underestimate the problems in bringing two groups together--let alone the three that Daimler, Chrysler and Nissan represent--in their rush to fit new industry pieces together.
“Ford has had an equity relationship with Mazda for 20 years, and even now the companies [face challenges] every day,” he said.
Analysts said DaimlerChrysler must weigh the risk of missing a chance to partner with Nissan--if it doesn’t act now--against shareholder wrath if it bites off too much.
Co-Chairman Schrempp said he is aware of the pitfalls but welcomes the opportunity to try. “As to [the challenge of integrating with] Japanese culture,” he said, “I’d love to have that opportunity.”
