Ghosn Talks About M&a

Carlos Ghosn is a legend in his own right. He is credited for bringing Nissan back to profitability when it was about to go bankrupt several years ago. And now he not only handles Nissan but French carmaker Renault as well. Being tasked with leading the two companies, Ghosn knows a thing or two about M&A or mergers and acquisitions.

Recently, the CEO of Renault and Nissan addressed about 400 students at the Sasin Graduate Institute of Business Administration at Chulalongkorn University. Ghosn talked about mergers and acquisitions as the corporate strategy gains momentum as companies merge.

“We are two organizations and under two different operational systems,” said Ghosn referring to Nissan and Renault. “When I am in Tokyo I do not make decisions for Renault and when in Paris I do not make decisions for Nissan.” So far, Ghosn has managed to take control of the two major car manufacturers. Before the Alliance between Renault and Nissan started, analysts pointed out that it would be almost impossible to merge the French and Japanese car manufacturers.

“Merging two organizations into one would be mission impossible as they both are very different,” continued Ghosn. “The two organizations are very proud of their history and their achievements.” This is very well documented in India where Nissan and Renault are expanding their business operations. Although the two companies share platforms for their vehicles, the two are independent of each other although Renault has a controlling share on Nissan. For example, Nissan manufactures its own vehicles and is responsible for procuring parts such as Nissan tailgate handles. Renault is also doing the same.

Ghosn also pointed out that in his position as the top executive of two identical companies, there is always the question when the two firms will be merged into one. “I say there is never that day as we want to preserve the identity of each organization as identity is the base for motivation. If you do not know who you are fighting for you will lose the motivation as well,” he declared. Ghosn also pointed out that this is not only true for Nissan and Renault but for other partnerships as well.

Ghosn continued that a merger should be done to increase the confidence of the employees of both companies. “If people are frustrated then they could lose 80% of their energy and then the challenge is, how do we bring back that energy?,” says Ghosn.

According to Ghosn, the merger between the two companies is beneficial to both. Nissan is once the strongest and most profitable Japanese car manufacturer but it has declined in the years leading to the merger. Meanwhile, Renault is looking to expand its operation. Thus, in 1999, Renault took over Nissan with the funds it has injected to the coffers of Nissan.

A good indicator if a merger is a success, according to Ghosn, is to monitor the market capitalization of the two companies. Market cap is stock price times the number of shares outstanding. After the merger, Nissan’s market cap has increased fivefold while Renault’s has tripled.

The Nissan and Renault CEO summed up the success of their merger saying: “Such moves, when done by a new entrant, cost huge sums of money and there are lots of mistakes that are made, but we have managed to do it very smoothly.”