DaimlerChrysler’s Talks With Nissan Fall Apart
Ending months of speculation about the creation of an auto maker of unprecedented global reach, DaimlerChrysler announced Wednesday that it has given up hope of acquiring part or all of Nissan Motor Co.
“We discussed our options of a potential partnership very openly and in a very friendly atmosphere but finally decided not to pursue a participation,” DaimlerChrysler co-Chairman Juergen Schrempp said in a statement issued here after meetings with Nissan President Yoshikazu Hanawa broke down.
Nissan, Japan’s No. 2 auto maker, issued its own comments a few hours later.
“We will continue to look into the possibility of cooperation projects which will not involve capital transactions with DaimlerChrysler,” Hanawa said. “We will actively pursue a possible linkup with other companies.”
The spotlight now shifts to French auto maker Renault, which remains interested in acquiring a stake in Nissan.
Analysts said DaimlerChrysler’s talks concerning Nissan Motor and Nissan Diesel, the firm’s commercial truck affiliate, fell apart after three months of intense discussions for two reasons: debt and control.
DaimlerChrysler ultimately balked at absorbing Nissan’s $22 billion in debt--or as much as $37 billion if obligations tied to its leasing operations are included--at the terms offered, amid resistance in Tokyo to DaimlerChrysler’s insistence on acquiring a controlling stake.
“I don’t think it was worth it,” said Peter Boardman, analyst with Warburg Dillon Read Tokyo. DaimlerChrysler “wanted management control, and Nissan wouldn’t give it up.”
Keith Hayes, London-based auto analyst with Goldman Sachs, applauded the move by DaimlerChrysler, the world’s fifth-largest auto maker by revenue. “This is excellent news. It’s reinforcement that DaimlerChrysler’s management is not going to do something ‘strategic’ at any cost--that there must be a reasonable chance of success.”
“The temptation to do this deal must have been massive,” Hayes said.
A marriage of Nissan and DaimlerChrysler was intriguing in part because it would have given the combined powerhouse a major presence in all three major global markets--Asia, Europe and North America.
But it also could have left DaimlerChrysler with a huge challenge, given Nissan’s enormous debt load and because such a move would have followed so quickly on the heels of the November merger of Chrysler Corp. and Germany’s Daimler-Benz.
Although most analysts believe Daimler and Chrysler are a good fit, any union of two corporate cultures and operational philosophies inevitably involves adjustments. The introduction of a third company would only compound the difficulties.
Renault, which has nearly $2 billion in cash, has said it is willing to invest in Nissan without taking a controlling stake. Renault Chief Executive Louis Schweitzer told reporters at the Geneva International Motor Show on Wednesday that talks between the two companies continue.
Japanese wire service Jiji News Service reported Wednesday that Nissan is considering a new share offer that would give Renault a veto-holding 33.4% of Nissan. The report, which did not cite any sources, could not be confirmed.
But one European analyst said he sees little logic in Renault’s desire to acquire part of Nissan, particularly if it doesn’t obtain management control.
“If Nissan was a normal company, I might understand, but this debt burden is huge. Nissan is a bloody minefield,” he said. “And it’s a real question whether Renault has the management depth to handle something like this.”
Nissan shares fell 42 cents to $3.46 by the end of today’s morning session in Tokyo. In trading Wednesday, Nissan’s American depositary receipts, each worth two ordinary shares, fell 81 cents to close at $6.94 on Nasdaq.
Nissan can survive alone, Boardman said. The Japanese auto market has shown some modest signs of life recently, and Nissan will have positive cash flow of about $413 million this year. But survival and prosperity are two different things, and Nissan still shoulders that enormous debt burden.
A Nissan restructuring plan announced last spring aims to cut $8.26 billion in debt during the next several months. The company sold off part of its headquarters in Tokyo’s upscale Ginza district and has divested its stake in a textile company to archrival Toyota Motor Corp. In an apparent bid to reduce its debt load further, Nissan Motor may sell part or all of its 27% stake in a cellular phone service, Japan’s Nikkei business newspaper reported Wednesday.
Analysts said DaimlerChrysler’s willingness to walk away from Nissan is the latest sign that the large global players are being disciplined in their approach to mergers and acquisitions. Ford, for example, was credited with showing restraint in its failed negotiations with South Korea’s Kia Motors, which has since been acquired by Hyundai Motor Corp., and the reasonable price the American firm paid for the car operations of Volvo of Sweden.
