Credit: Nissan/Honda

A proposed $58 billion merger to create the world’s fourth-largest carmaker appears on the verge of collapse after Honda made an unexpected proposal to turn Nissan into a fully owned subsidiary, according to three people familiar with the matter.

The two rivals announced discussions on a combination in December, but just over 40 days later the talks have already soured, as Honda faces shareholder and internal pressure to take full control of Nissan to turn around the ailing carmaker.

The latest proposal, delivered to Nissan at the weekend, deviates from initial plans to bring the two companies under a jointly owned holding company, a structure that would have provided room to retain Nissan’s brand and decision-making powers.

Tensions emerged early in the negotiations as the rivals clashed over the equity ratio and valuation of their assets, according to people with knowledge of the talks.

Nissan executives were taken aback by the new proposal—delivered as a “take it or leave it” offer—but the company has not finalized its response, the people said.

Despite dismissive feedback for Honda’s new proposal at a Nissan board meeting on Wednesday afternoon, no final decision was taken to abandon the merger talks and a formal announcement would likely be held until next week, according to two people familiar with the matter.

One person close to Nissan said they thought Honda’s sudden “aggressive” change of posture suggested it was looking for a way out of merger talks.

Last week, France’s Renault, which holds a 36 percent stake in Nissan, urged its Japanese partner to negotiate a higher premium on its stake to account for Honda taking control. Renault also pressured Nissan not to drag out talks, out of concern it needed to focus on reviving its business.

Nissan had originally pitched the deal as “a merger of equals” to convince factions inside the group to integrate with Honda, but people close to Renault said it was essentially Honda taking control.

Nissan’s weak financial performance has led to its market capitalization collapsing to a fifth of Honda’s, skewing the balance of power in negotiations.

The talks were also triggered after Taiwanese iPhone contract manufacturer Foxconn approached Renault about acquiring part of its stake in Nissan late last year. Renault had been offloading its shareholding in Nissan following a restructuring of their 25-year alliance in 2023.

Nissan shares surged 7 percent and Honda’s were up 3.5 percent on Wednesday after Japanese media first reported the new proposal.

During the press conference unveiling merger talks in December, Honda chief Toshihiro Mibe said a holding company structure was needed to protect both brands, even though Honda would initially take the lead.

He warned multiple times that the merger would only proceed if Nissan successfully executed a turnaround plan that involved cutting production capacity by 20 percent and shedding 9,000 jobs.

Honda and Nissan said in statements on Wednesday that they had originally planned to finalize and announce the direction of their management integration by the end of January, but that plan has been pushed back to mid-February.

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