Honda Shares Surge 17% as Buyback Eases Nissan Merger Concerns

Honda Motor Co. Ltd. (HMC) shares soared by 17% on Tuesday, marking their biggest one-day gain since 2008, following the announcement of a massive share buyback plan and merger talks with Nissan Motor Co. Ltd. (NSANY). The Japanese automaker's stock price jumped to 1,452 Japanese yen, while Nissan shares declined marginally by 0.22% to 449 Japanese yen. U.S.-listed Honda Motor Co. Ltd. (HMC) traded higher on Monday, closing at $26.93, up 12.72% for the day, and rose an additional 2.94% in after-hours trading.

Honda plans to repurchase up to 1.1 trillion yen ($7 billion) worth of shares, representing about 24% of its outstanding stock, by December 2025. This buyback significantly exceeds its previous November plan to acquire 100 billion yen in shares. The two Japanese auto giants confirmed they have entered formal negotiations to merge operations, which could create the world's third-largest automaker by sales volume.

The companies expect to conclude merger discussions by June 2025, with Mitsubishi Motors Corp. (MMTOF), Nissan's existing strategic partner, having until January to decide whether to join the combined entity. The merger is seen as a strategic move to strengthen the automakers against global challenges, including increasing competition from electric-vehicle makers such as Tesla and BYD.

The combination of Honda and Nissan would create a powerful force in the global automotive market, with annual sales of approximately $191 billion and operating profits exceeding $11 billion. The merged entity would have a combined market capitalization of nearly $54 billion, trailing only Toyota and Volkswagen. The merger would also allow the companies to share production lines, purchase parts in bulk, and combine research and development projects, leading to improved operational efficiency and reduced costs.



However, the automakers face hurdles before finalizing the deal. They both sell similar sport-utility vehicles and sedans for the mass market in the U.S. and other regions, which could lead to cannibalization of sales and increased competition. Additionally, Nissan's alliance partner Mitsubishi Motors is exploring the possibility of participating in the merger, which could introduce further complexities.

Despite these challenges, the proposed merger signals a broader trend toward consolidation within the automotive industry, as legacy manufacturers face stiff competition from Tesla, China's BYD, and other EV leaders. "Legacy auto companies that don't find new partners must face the prospect of being smaller companies with higher capital expenditures," noted Adam Jonas, an analyst at Morgan Stanley.

In conclusion, Honda's share buyback plan and merger talks with Nissan have boosted investor confidence in the company's financial health and commitment to shareholder value. The buyback, representing 24% of outstanding shares, signals Honda's strong cash position and ability to return capital to shareholders. The merger, if successfully completed, would create the world's third-largest automaker by sales, strengthening the companies' position against global challenges and intensifying competition in the electric vehicle market. As the merger talks progress, investors should closely monitor the developments and assess the potential long-term benefits for Honda shareholders.