Moody’s Gives Thumbs Up to Possible Honda-Nissan Merger

American depositary receipts (ADRs) of Honda (HMC) advanced Tuesday after Moody’s gave a positive outlook about the potential merger between the automaker and Japanese rival Nissan.

The two companies confirmed yesterday that they planned to join forces as they faced increasing costs and competition, especially in the race to build cost-effective electric vehicles (EVs) with demand waning and Chinese competitors’ market share expanding.

Moody’s Says Combination Would Be ‘Credit Positive’

Moody’s said that the combination would be “credit positive if executed successfully.” According to a report seen by Bloomberg and others, Dean Enjo, VP-senior analyst at Moody’s, wrote that Nissan would be especially helped because it has weaker debt metrics than Honda.

Enjo added that the integration would be beneficial because the two automakers will be sharing research and development (R&D) costs.

However, former Nissan Chief Executive Officer (CEO) Carlos Ghosn warned that it would face cost-cutting “carnage,” because the two firms will have “total duplication.” He told CNBC that if the companies merge, “Honda is going to be in the driver’s seat,” and that Nissan would be “the minor partner.”

Even though Honda’s ADRs have jumped the past two sessions on the news, they’re still down about 13% year-to-date.