NSANY Nissan Motor Company Ltd (PK)

By Nick Kostov in Paris and Peter Landers in Tokyo 

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. The move threatened to backfire on the executives, however, when METI responded by drafting an agreement that would allow it to oversee the alliance talks, a role Nissan considered invasive, the person added.

The account of government intervention shows the international tensions playing out just weeks before Nissan executives began investigating Mr. Ghosn, who was pushing for a closer combination.

Tokyo's direct involvement in discussions about the future of the globe-spanning alliance, as detailed by the person familiar with them, hasn't been previously reported. It 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 stark differences between the two sides in the two-decade partnership. Those differences festered in the months leading up to the arrest and ouster of Mr. Ghosn as chairman of both companies.

The merger talks further chilled relations between Nissan and Renault, once close allies, with Mr. Ghosn acting as interlocutor between not just the two companies but also the French and Japanese governments.

Nissan's unusual request for government help is also a sign of how much Nissan executives felt they were under pressure from the French to merge the car makers.

A METI official in charge of auto-industry policy said he couldn't comment on diplomatic negotiations but said Japan's 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 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 him, they were acting on information from a small group of Nissan executives who began investigating Mr. Ghosn in June.

Speaking at a news conference on Nov. 27, the METI minister, Hiroshige Seko, 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."

In the weeks leading up to the summer, the person familiar with the deliberations said, the Japanese government tried to act as a counterweight to the French state.

As Renault's largest shareholder, the French state had a few months earlier publicly instructed Mr. Ghosn to work toward making the alliance "irreversible." The Wall Street Journal reported earlier this week that discussions became increasingly intense in late April when a Nissan executive said he told the French government agency that manages the Renault stake that Nissan opposed a full merger.

The agency declined to comment.

Nissan executives were long opposed to the idea, instead demanding a rebalancing of the auto makers' cross-shareholdings. Renault owns 43% of Nissan while Nissan owns 15% of Renault without voting rights. That is a legacy of Renault's investment in Nissan while the Japanese company was under financial duress. Today, Renault is the smaller company in terms of sales.

Nissan sought help from METI but the request 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 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.

The French economy ministry didn't respond to requests for comment.

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 Wall Street 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.

A Renault spokesman declined to comment.

The draft accord also stipulated that parties involved should start discussing a number of delicate issues, including the idea that the share prices of Renault and Nissan were undervalued, the person said. Another discussion point, the person said, was the cross-shareholdings.

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.

Write to Nick Kostov at Nick.Kostov@wsj.com and Peter Landers at peter.landers@wsj.com

(END) Dow Jones Newswires

February 15, 2019 10:07 ET (15:07 GMT)

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