(Bloomberg) -- Nissan Motor Co. shares declined the most since August’s market rout, amid volatility as investor focus shifts to the terms of the carmaker’s planned deal with Honda Motor Co.
The stock tumbled as much as 15% Friday, its sharpest intraday drop in 26 years, before paring its loss to close 7.8% lower. It was the most-traded stock, in terms of volume, on Japan’s benchmark Topix.
The ailing Japanese automaker aims to establish and list a joint holding company with Honda by August 2026, according to a Dec. 23 announcement. The exact terms of the arrangement are yet to be decided, but the share transfer ratio will take into account the carmakers’ stock prices, according to the companies.
The starting ratio for a Honda-Nissan tie-up would be 5:1, based on the companies’ current market capitalization, according to an estimate released by Nikkei on Friday. Citigroup Inc. analyst Arifumi Yoshida estimated the same in a Dec. 23 report.
Honda’s shares rose 2.1%, taking their gains since Dec. 17, just before the potential tie-up came to light, to 19%. Nissan has risen 51% in the same period, sending its shares into technically overbought territory.
The “harsh reality” of a 5:1 ratio may be disappointing Nissan’s investors, as many had been hoping for big gains from the Honda deal after Nissan’s poor stock performance in recent years, said Tatsuo Yoshida, a senior analyst at Bloomberg Intelligence.
Nissan’s shares have been volatile since news of the Honda deal broke, surging 24% on Dec. 18, their biggest intraday gain in at least five decades. Their 30-day historical volatility has soared to the highest in about 16 years.
Even taking into account Friday’s plunge, Nissan shares still rose 15% for the week. Trading volume on Friday was over 600% higher than its three-month average, according to data compiled by Bloomberg.
The stock’s climb makes it vulnerable to selloffs, particularly as investors speculate on the terms of a tie-up with Honda.
“Nissan’s rally should be viewed as temporary and short-lived,” as its integration with Honda will be based on “reasonable valuations,” said Bloomberg Intelligence’s Yoshida.
Nissan’s internal restructuring is a condition of the Honda deal, and future restructuring costs may impact the merger ratio, according to Citigroup’s Yoshida.
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