Investing.com– Japanese shares of Honda Motor Co (NYSE:) rose sharply on Tuesday after the firm said it and peer Nissan (OTC:) Motor (TYO:) were discussing terms to merge by 2026, although the latter’s shares fell sharply.
Honda shares surged as much as 14%, also benefiting from the announcement of a 1.1 trillion yen ($7 billion) stock buyback.
On the other hand, Nissan shares fell as much as 7%.
Honda and Nissan announced on Monday that they were discussing a potential merger, with Mitsubishi Motors Corp. (TYO:) – in which Nissan holds a 34% stake- also considering joining the deal.
The combined entity could be valued above $50 billion, based on the market worth of all three manufacturers.
The deal has the potential to create the world’s third-largest automaker by sales, behind Toyota Motor (NYSE:) and Volkswagen (ETR:). It comes as Honda and Nissan grapple with heightened competition in their major market China, especially from the fast-growing electric vehicle industry.
Last month, Nissan revealed plans to reduce its global workforce by 9,000 jobs and cut 20% of its production capacity following a sharp decline in sales in crucial markets like China and the U.S.
Meanwhile, Honda reported disappointing earnings due to a drop in sales in China, though its strong performance in motorcycle and hybrid vehicle segments provided some financial stability.
The two companies would aim for combined sales of 30 trillion yen ($191 billion) and operating profit of more than 3 trillion yen through the potential merger, their chief executives said during a press conference on Monday.
They aimed to finalize discussions by June 2025 and establish a holding company by August 2026, at which point both companies’ shares would be delisted.
