Honda shares rally, Nissan slides on merger announcement

Honda Motor Co shares (NYSE:HMC) surged in Japan on Tuesday after the automaker said it was negotiating terms with the other Japanese carmaker Nissan (OTC: NSANY) by 2026 to merge, while the latter's shares fell sharply.

Moreover, Honda's shares rose by as much as 14%, boosted by the announcement of a purchase worth 1.1 trillion yen ($7 billion).

The shares of Nissan, on the other hand, tumbled to 7% lower.

The companies Honda and Nissan announced the talks to merge on Monday, with Mitsubishi Motors Corp. (TYO:7211) - of which the former has a 34% stake - also said to consider joining the deal.

Based on the market value of all three producers, the combined body could well be worth more than $50 billion.

The agreement might possibly make the third-largest automobile manufacturer worldwide after Toyota Motor Corporation and Volkswagen. This comes as both Honda and Nissan contend with fierce competition in their most important market: China, particularly from the rapidly budding electric vehicle industry.

Last month, Nissan declared a mission to slash its global workforce by 9,000 and reduce its production capacity by 20% due to an alarming drop in sales in important markets, such as China and the U.S.

Honda has issued terrible earnings reports as a result of continued poor sales in China; however, the motorcycle and hybrid segments have provided some cushion.

"Our vision is to have combined sales of 30 trillion yen ($191 million) and operating profit of more than 3 trillion yen through the potential merger," said their chief executive officers during a press conference on Monday.

They aimed to complete discussions by June 2025 and set up a holding company by August 2026, at which point shares in both firms would be delisted.