Nissan Enlisted Japanese Government to Fend Off Renault Merger
Intervention reveals the tensions that simmered before Nissan executives began investigating former Chairman Carlos Ghosn
Months before the arrest of auto titan Carlos Ghosn, the Japanese government intervened in talks about whether to merge Nissan Motor Co. and Renault SA, according to a person familiar with the deliberations.
Nissan executives initially asked Japan’s Ministry of Economy, Trade and Industry, or METI, for help in fending off a proposal to merge the car makers that Mr. Ghosn was shepherding, the person said. Their move threatened to backfire on the executives, however, when METI responded by drafting an agreement that would allow it to oversee talks between the two auto partners, a role Nissan considered invasive, the person said.
The account of government intervention shows international tensions playing out just weeks before Nissan executives began investigating Mr. Ghosn, who was pushing for a closer combination within the Renault-Nissan alliance.
Tokyo’s direct involvement in the discussions, which hasn’t been previously reported, stands in contrast with the Japanese government’s public stance that the alliance’s future is for the companies to decide. The involvement also highlights the differences that had arisen between the two sides in their long-running partnership—differences that festered in the months leading up to the November arrest of Mr. Ghosn and his subsequent departure as chairman at each company.
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Nissan’s unusual request for government help indicated the level of pressure that Nissan executives sensed coming from the French side to merge the car makers. As it turned out, the merger talks further chilled relations between Nissan and Renault, with Mr. Ghosn acting as interlocutor between not just the two companies but also the French and Japanese governments.
A METI official in charge of auto-industry policy said he couldn’t comment on diplomatic negotiations but said the government has always believed alliance issues should be resolved by the companies themselves in a fashion acceptable to all sides. Japan has no intention to intervene in Nissan-Renault discussions or tell the companies what to do, he said.
Nissan and Renault declined to comment.
Japanese prosecutors arrested Mr. Ghosn on Nov. 19. They later charged him with underreporting his compensation in eight years of Nissan financial statements and with causing Nissan to pay the company of a Saudi friend who helped him with a personal financial problem. Mr. Ghosn has said he is innocent of the charges. He says he kept a record at Nissan of how much he thought he was worth but describes it as a hypothetical calculation that didn’t bind Nissan to pay him anything beyond his publicly reported compensation. He says Nissan received valuable services from the Saudi company and paid it appropriately. In an interview last month with Japanese newspaper Nikkei, he blamed his arrest and the charges against him on “a plot and treason.”
The government of Prime Minister Shinzo Abe has said the Ghosn case is a matter for prosecutors and it isn’t involved. When prosecutors arrested Mr. Ghosn, they were acting on information from a small group of Nissan executives who began investigating him in June.
At a news conference on Nov. 27, Hiroshige Seko, METI’s head, drew a distinction between the role of the French state—which, as Renault’s largest shareholder, has a seat at the negotiating table with Nissan—and the Japanese government.
“We are not shareholders,” Mr. Seko said. “In that sense, I believe that the government should not speak about individual companies, including personnel and governance matters.” Mr. Seko described the future of the Nissan-Renault alliance as “a problem for private companies.”
Earlier in the year, the person familiar with the alliance’s deliberations said, the Japanese government had tried to act as a counterweight to the French state, which was asserting itself.
As Renault’s largest shareholder, the French state in February of last year had publicly instructed Mr. Ghosn to work toward making the alliance “irreversible.” The Wall Street Journal has reported that discussions became increasingly intense in late April when the French government agency that manages the Renault stake was told that Nissan opposed a full merger.
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Nissan executives had long held that position, demanding instead a rebalancing of the auto makers’ cross-ownership. Renault owns 43% of Nissan while Nissan holds 15% of Renault without voting rights. The imbalance is a legacy of Renault’s investment in Nissan when the Japanese company was under financial duress. Today, Renault is the smaller company in terms of sales.
Nissan sought help from METI but in doing so unwittingly opened the door for the government ministry to ensconce itself in the deliberations, according to the person familiar with them.
The ministry drafted an agreement for both governments to sign that dismissed Renault’s ideas for strengthening the alliance as a mere opinion that had no bearing on Nissan’s decision-making, the person said.
In a surprise to Nissan officials, the person said, the draft accord called on French officials to notify their Japanese counterparts in the event the French state made proposals affecting the auto alliance. By drafting the accord, the person said, METI aimed to foster smoother communications and decision-making by the parties involved.
Nissan officials said the French government discussed the draft agreement in May, the person said. It is unclear whether Paris responded. The French agency overseeing the Renault stake declined to comment.
The METI official said he was unaware of any draft document. Generally speaking, he said, it was only natural to insist that Nissan has the right to decide matters on its own, regardless of what Renault might say. He also said that, in general, Japan has called on the parties to communicate well and share information.
Some senior Nissan officials discussed whether the draft accord promised the Japanese government too much involvement in Nissan’s internal affairs, said the person familiar with the deliberations.
Among the Nissan executives involved in the draft discussions was the head of Nissan’s CEO office, Hari Nada, the person said. The Journal reported in December that Mr. Nada played a pivotal role in the investigation that led to Mr. Ghosn’s arrest.
Nissan declined to make Mr. Nada available for comment.
The draft accord also stipulated that parties involved should start discussing a number of issues, including whether Renault and Nissan shares were undervalued, the person said. Another discussion point, the person said, was the cross-ownership.
The alliance between Renault and Nissan dates to 1999, when Renault bailed out a then-struggling Nissan. The companies today pool technology, basic components, and research and development, creating global scale that allows them to better compete with giants like Volkswagen AG, Toyota Motor Corp. and General Motors Co.
—Sean McLain in Tokyo contributed to this article.
Corrections & Amplifications
The photo of Carlos Ghosn at the top of this article is from May 12, 2016. An earlier caption incorrectly said only May 12.
Write to Nick Kostov at Nick.Kostov@wsj.com and Peter Landers at peter.landers@wsj.com