COVID-19 ENCOURAGES GOVERNMENTS TO PLAY THE MEDDLING MATCHMAKER / THE FINANCIAL TIMES OP EDITORIAL

Covid-19 encourages governments to play the meddling matchmaker

The misguided Nissan-Honda merger proposal is unlikely to be the last such effort from panicking officials

Leo Lewis


© Ingram Pinn/FT



When Soichiro Honda gave interviews on camera, the great industrialist would fizz with passion on a variety of subjects — from cutting-edge motorbike engines to vintage British sports cars. 

But what really ignited the late founder of Honda Motor was despair at his own government — a misguided (as he saw it), imagination-starved suppressant of the kind of dreams on which he had built his remarkable company. This, after all, was a cabal of politicians and bureaucrats who had derided Honda’s global growth strategy and tried to prevent it entering the car market and competing with favoured champions Toyota and Nissan. When the Honda S500 was released in 1963 it was part chic roadster, part blistering defiance from a man who once declared “I’m not going to do anything the government tells me to.”

So we can hazard a guess at what Honda, were he alive today, would have made of the recent attempt by top echelons of the Japanese government to prod his company into merger talks with its arch-rival, Nissan. The fact that neither carmaker was remotely enthusiastic, and that the idea has — for now — been allowed to fizzle, is not the point.

Although the doomed effort slightly predated the Covid-19 pandemic, it has come to light at a pivotal time. For many industries, even short-term survival in the crisis may depend on substantial restructuring. Some of that, say veteran investors, will involve such hastily conceived mergers of companies whose corporate DNA throbs with contempt for their nearest domestic rivals.

In Japan, one consequence of the pandemic, say deal bankers and several prominent chief executives, has been to reawaken the government’s urge to meddle. It has given senior figures and ministries the idea that they now have a proactive role to play in fortifying and reshaping a corporate world in crisis.

Yet, while Japan’s highly fragmented economy looks especially ripe for consolidation, it may well not be the only place where those instincts kick-in. Germany and South Korea are cited as countries where companies may experience similar pressures. The superficially defensive — but flawed — domestic merger proposal looks primed to become a defining unit of government interference. M&A lawyers say that may be compounded as companies are unable to perform adequate due diligence on overseas targets and turn to defensive deals that can be done at home.

The failed effort to bring Nissan and Honda together is instructive. The vision that came from the government was simplistic, and prone to repetition. By the end of December, when the idea emerged, there was no longer any disguising the fragility and irascibility of Nissan’s 20-year alliance with its French partner, Renault.

There were concerns that Nissan could be left exposed by a further breakdown in relations and there was a pre-emptive panic in government circles about how to prepare for that. Honda — still independent but also beginning to look vulnerable amid its global rivals — was the solution of a meddling matchmaker whose default template is the national champion.

A few people point to ways in which a Nissan-Honda tie-up might have some operational logic, even if it would, in practice, prove impossible to realise. Analyst Mio Kato, in a note on the SmartKarma platform, cited the potential for co-operation on electric, hybrid and fuel-cell vehicles. But, in reality, say the top executives of Japanese megabanks, steelmakers, oil refiners and others that have undergone the process, domestic mergers become supremely difficult from the moment integration begins and expectations of compatibility are shattered.

Counter-intuitively, said one banking chief executive, they may be more difficult than large-scale integration with foreign companies, where the starting point is an assumption of culture clash and a determination to overcome that.

The idea of getting Nissan and Honda together for talks required multiple suspensions of disbelief. It also illustrates a misunderstanding about how two of Japan’s most famous companies actually work. There were many reasons that the prospect of fruitful talks was so low: the 43 per cent stake in Nissan held by Renault; the geographic overlap; the debilitating management distraction of righting the Nissan ship after the chaos of former chairman Carlos Ghosn’s departure; and the unique engineering designs of Honda’s cars that make standardised supply chains difficult.

But infinitely clumsier was the government’s institutional amnesia over Honda’s history of dealing with “suggestions” coming from the corridors of power. The fact that Honda has an automotive business to merge with Nissan at all is because, woven into its fabric, is a contempt for the authority wielded by government economic planners.

The idea that a crisis might cause Honda to rethink that position underestimates the extent to which its founder’s passions — and his famous insistence that the government “was incapable of making automobiles, but I was” — still infuse the company almost three decades after his death.

The Japanese government’s problem, if Covid-19 does lure it further into the corporate matchmaking game, will be the realisation of how many quiet Hondas are lurking in corporate Japan — facing pandemic-induced crisis but fiercely protective of their culture and knowing full well why their industries have remained fragmented for so long.