Honda and Nissan officially begin merger talks to create the world's third-largest automaker

Japanese automakers Nissan and Honda announced on Monday that they have entered official merger talks create the world's third-largest carmaker by sales.

At a press conference on Monday, Honda CEO Toshihiro Mibe said companies need more scale to compete in developing new technologies in electric vehicles and smart driving. Business integration will give companies “an advantage that will not be possible in the current cooperation framework,” Mibe said, according to a translation.

The deal would be aimed at exchanging intelligence and resources and providing economies of scale and synergies while protecting both brands, he said.

A holding company would be established as the parent company of Honda and Nissan, listed on the Tokyo Stock Exchange. The larger Honda will appoint a majority of the integrated entity's board members. The combined group has the potential to deliver revenue of 30 trillion yen ($191.4 billion) and operating profit of more than 3 trillion yen, he said.

The talks are scheduled to end in June 2025.

Nissan's strategic partner, Mitsubishi, has been given the opportunity to join the new group, and will make a decision by the end of January 2025.

Companies face intense global competition in the electric vehicle market from, among others: Tesla and Chinese BYD.

The proposed agreement was first reported by the Japanese newspaper Nikkei December 17.

Nissan shares soared after initial reports of the merger. Analysts say potential connection is the result poor financial results in the company i restructuring its long-standing partnership with France Renault.

In its latest quarterly results, Nissan he said this would cut 9,000 jobs and reduce global production capacity by a fifth.

Honda CEO Mibe said Monday that some company shareholders may believe the deal would represent Honda's support for Nissan, but noted that the merger was “based on the assumption that Nissan will complete turnaround efforts.”

“If Nissan and Honda don't stand on their own two feet, business integration talks won't happen,” he said.

Nissan CEO Makoto Uchida told reporters that the integration discussion “does not mean we have given up on turning things around” and is instead aimed at ensuring the company's competitiveness in the future.

“Once we have made these pivots towards future development and future growth, we need to look at the ultimate size and growth. This growth will come through partnerships,” he added.

Nissan “has problems in the market, it has problems at home, it doesn't have the right product offering,” Peter Wells, professor of business and sustainability at the Center for Automotive Research at Cardiff Business School, told CNBC: “Road signs in Europe“last week.

“There are so many warning signs around Nissan at the moment, so many red flags, that something must have happened. Whether that is the answer is another question,” Wells added.

This is the latest news and will be updated soon.

— CNBC's Sam Meredith contributed to this story.