A sign marks the location of a Honda dealership in Libertyville, Illinois, on December 18, 2024.
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Shares of a Japanese car manufacturer Honda they were on track to have their best day in 16 years announced buybacks of up to 1.1 trillion yen ($7 billion) its shares on Monday in connection with merger talks with Nissan.
Nissan and Honda said they had started official merger negotiationswhich could catapult them to the position of the world's third-largest carmaker by sales.
Honda also announced that it will buy back 24% of the issued shares by December 23 next year. The company's shares rose 15.51% and, if gains continue, will have their best day since October 2008. Nissan shares fell more than 1%.
The Honda-Nissan transaction would focus on sharing knowledge and resources, achieving economies of scale and creating synergies, said Honda CEO Toshihiro Mibe. A holding company will be established as the parent organization for both Honda and Nissan, and the company will be listed on the Tokyo Stock Exchange.
“These two companies are in the same market and they have a very similar brand image, they have very similar products,” Hakan Dogu, president of Alagan Mobility Solutions, told CNBC on Tuesday.
“The new management faces a big challenge to diversify the product range and expand the business,” he added.
Honda has been releasing data since the beginning of the year
The talks are scheduled to end in June 2025.
Nissan's strategic partner Mitsubishi has been offered the opportunity to join the new group and is expected to make a decision by the end of January 2025.
Honda reported Operating profit was 1.382 trillion yen for the full year ending March 2024 compared to Nissan's 568.7 billion yen. The automakers' combined value would be nearly $54 billion, with Honda's market capitalization accounting for the largest share at $43 billion.
Analysts suggested that the potential merger is due to Nissan's financial difficulties and the restructuring of its long-standing partnership with France's Renault.
In its latest quarterly report entitled Nissan announced plans to lay off 9,000 workers and reduce its global production capacity by 20%.
—CNBC's Jenni Reid contributed to this report.