Renault SA's purchase of a big chunk of Nissan Motor Co. Ltd. revealed the Japanese carmaker has an unfunded pension liability of $3.3 billion.
Nissan's pension assets total $1.6 billion; its pension liabilities, $4.9 billion. (The unfunded liability is the difference between assets and liabilities.)
Renault is paying $5.4 billion for a 37% share in Nissan. The deal, which creates the world's fourth largest car maker, forced Nissan to reveal the depths of its pension liabilities for the first time.
The unfunded liability grew recently (from $1.8 billion) while Nissan executives were trying to measure the auto maker's pension liabilities to meet U.S. and European standards.
Nissan revealed an additional $1.5 billion under the category of deferred taxes and pension provision liabilities.
In the weeks leading up to the deal, analysts had speculated Nissan's pension liabilities could be as high as $8.5 billion.
Some investment professionals still doubt Nissan's pension numbers.
"I don't know how that number was arrived at," said Maryann Keller, a managing director with ING Baring Furman Selz in New York, and a veteran auto industry analyst. "I don't know any context to put that number in.
"I had heard a variety of numbers and I gave no credence to them," she said. "This is a very secret number in Japan. Most financial numbers in Japan are black magic."
Other analysts were more sanguine.
"Overall, it doesn't look too bad," said John Buckland, an auto analyst in London with Daiwa Europe Ltd.
"A lot of people were pretty skeptical" about the deal because of the mystery surrounding Nissan's pension liabilities, he said.
People were asking, " 'Did Renault know what it was getting into?' But the level of (pension) debt, after adjustments, is reasonable.
"The pension fund shortfall seems to be a lot less than what I was expecting," Mr. Buckland said.
Nissan executives breathed a sigh of relief following meetings with analysts in which the pension issue was discussed. "The pension fund liability (of $4.9 billion) is not a critical peg the analysts are judging us by," a Nissan executive said. "It's important but doesn't make or break" Nissan's valuation.
Still, Nissan "has a lot of problems with pension liabilities," said Greg Melich, an analyst with Morgan Stanley Dean Witter in London.
Renault, meanwhile, has $700 million in pension assets, Mr. Melich said. It's a fully funded plan, he added.
Nissan reported pension fund assets of close to $1.6 billion at the end of March 1998, according to its annual report. That includes pension assets of Nissan North America Inc., its subsidiary in the United States and Canada. Nissan does not break down the pension assets of its different units.
The company did not respond to repeated requests for more current information about its pension funds.
In the end, analysts and money managers question whether the deal will be a success. They pointed to the difference in culture and language as two formidable obstacles in turning the partnership into a dominant global car company.
Nissan has its back to the wall, some said. "It's a survival issue with Nissan," said Michel Raud, managing director with Philippe Investment Management Inc. in Paris. "Nissan is in really bad shape" because of its billions in debt and its losing market share from 1995 to 1998 in Japan, Canada and the United States, he said.
Renault is promising to cut costs, he said. Carlos Ghosn, Renault's executive vice president -- who is known as "Le Cost Killer" in the French press -- will be appointed Nissan's chief operating officer. In the end, Mr. Raud added, "Renault says, 'It's a bargain we can afford.' "