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Nissan, Renault and Mitsubishi stocks go off-road after CEO arrested

This week’s shocking news that Nissan Motors [NSANY] dismissed its CEO Carlos Ghosn after he was arrested in Japan for financial misconduct rocked the boat considerably. An investigation alleges that Ghosn underreported his salary by about $44.6m over a five-year period and made personal use of company money.

As a result of the news, Nissan’s stock has fallen to a two-year low on the Tokyo stock exchange, losing 2.7% since Monday. Renault [RNO], the company for which Ghosn also serves as CEO and chairman has fallen more than 5% on the Euronext Paris exchange, while Mitsubishi [MSBHY], which makes up the third point in a strategic partnership between the trio of companies, fell 0.7%.

The broader Asian market has also declined since the start of the week, with the benchmark Nikkei 225 down 0.6% and the Shanghai composite falling by 3.7%.

Once viewed as the saviour in the auto business, Ghosn had been president and CEO of Nissan for 17 years, president of Renault for 13 years and became chairman of Mitsubishi in 2016. Under his leadership, he forged the three car manufacturers into a tight partnership and made a name for himself by rescuing Nissan from near-bankruptcy almost two decades ago.

“The last thing one of the world’s biggest automakers needs is the disruption caused by an investigation into the behaviour of a man who has towered over the global auto sector,” Michael Hewson, chief market analyst at CMC, said. 

Fujio Ando, advisor at Chibagin Securities, suggests the fact that the investigation was triggered by a whistleblower is, ultimately, a positive from a corporate governance point of view. He also doesn’t expect the news to sharply affect car sales.

“The last thing one of the world’s biggest automakers needs is the disruption caused by an investigation into the behaviour of a man who has towered over the global auto sector,” - Michael Hewson, chief market analyst at CMC

 

Nissan and Renault merger not likely 

Ghosn faces criminal investigation and has since been sacked by Nissan in a unanimous vote, but officially remains chairman and CEO at Renault for now, with a deputy chief executive only taking over his duties temporarily. The maximum punishment in Japan for falsifying finances is up to 10 years in prison and an $89m fine. 

Whether a full merger between Nissan and Renault, which was an idea Ghosn had floated during his time, is off the cards due to his dismissal is not yet known. Hewson believes the “events throw any prospect of that up in the air”.

Many argue that the alliance is unlikely to fall apart. Michelle Krebs, analyst at Kelley Blue Book, does not predict its demise as “cutting them apart would be difficult”.

However previously plastered over cracks are now starting to be revealed, with Nissan - the bigger company but with the less controlling stake of 15% - now looking to assert itself after ousting Ghosn. 

Renault currently holds a majority 43% stake in the Japanese carmaker, and while Nissan’s shares don’t have any voting rights, it’s reportedly seeking more say in the alliance, aiming to renegotiate the structure of the partnership. 

For the moment, both Nissan and Renault have publicly announced their commitment to the alliance but with Ghosn out, the glue that held the two together may have disappeared with him.

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