Shares of Honda Motor Co. that are traded in the U.S. went through the roof on Monday, when the Japanese automaker made its merger talks with Nissan official and announced a big return of its own shares.
Some people think that a merger would be a sign that the auto business needs to get in better shape.
Before the market opened, Honda’s stock HMC +12.08% went up 16%. If it kept going up during the trading day, it would be the biggest one-day percentage gain since Oct. 28, 2008, when it went up 19.6%.
The stock hit a 23-month low of $23.70 two days ago, and now it’s going up.
Honda said it would buy back up to $7 billion (1.1 trillion yen) of its own shares to improve the “efficiency of its capital structure,” give investors more money, and use a flexible capital strategy. This made the stock price go up even more. It would start to buy back shares on January 6, 2025, and go on for most of next year.
Before the market opened, Nissan’s U.S. stock NSANY -0.56% was down 2.1%.
During Asian trade, Honda’s stock (7267) went up 3.82 percent and Nissan’s stock (7201) went up 1.58 percent. These were not very big gains, though. Renault RNO -1.20% shares fell 0.6%. Renault owns 17% of Nissan.
Last week, it was said that Honda and Nissan were in talks that could lead to a merger. On Monday, the two companies announced that they had signed an agreement to create a joint holding company. Nissan’s partner, Mitsubishi Motors, is also a part of the agreement. Mitsubishi will decide by the end of 2025 if it will take part or not. At a press meeting, the companies are said to have said that they hope the holding company will be listed by August 2026.
Joseph Spak, an expert at UBS, recently wrote to clients that the fast-paced changes in the industry mean that companies need to merge, tie up, or make other moves to better use their capital.
The proposed merger would create a huge auto company at a time when the industry is facing big problems, such as new cars that are too expensive for many buyers, competition from electric cars made in the U.S. and China, especially from Tesla TSLA +2.95% and BYD 002594 +0.18%, and falling sales for Nissan.
In a note sent to clients last week, a group of JPMorgan strategists said, “A possible merger between Honda and Nissan would create a top 3–4 OEM, globally competing head-to-head with Toyota, VW, and Hyundai Group. It would also benefit from stronger economies of scale than peers with a strong production footprint spread across 50% Asia (20% Japan) and 40% in [North America].”
Toshihiro Mibe, the CEO of Honda, was quoted as saying at the news conference that the new company would have an operating profit of ¥1 trillion that would grow to ¥3 trillion over time and could make up to ¥30 trillion in sales.
Honda owners would like the boost that a merger could give them. The stock has dropped 10.68% so far in 2024, and it’s on track to have its worst year since 2022, when it dropped 19.65%.
