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Honda's shares soared after the company said it was in talks to merge with rival automaker Nissan.
Honda's stock went up as much as 17% when local markets opened on Tuesday, a day after it announced that it had begun discussions with Nissan. The company's shares closed 12% higher on Tuesday.
Besides the merger discussions, Honda said on Monday that it would buy back as much as 1.1 trillion yen, or about $7 billion, worth of its stock by December 2025.
Mitsubishi Motors, whose representatives were also present at Monday's announcement, said it may join the merger. Nissan is Mitsubishi's largest shareholder.
"Nissan and Honda will start the discussion from today onwards with an aim to clarify the possibility of business integration by around the end of January in line with the consideration of Mitsubishi Motors," Honda CEO Toshihiro Mibe said in a statement on Monday.
Honda did not respond to Business Insider's request for comment.
Honda's shares had initially fallen when news first broke of the merger discussions last week. The company's shares closed 3% lower when local markets closed on Wednesday.
Merging with Honda would serve as a critical lifeline for Nissan, which has been struggling with declining sales and profits this year.
In November, Nissan said it was slashing 9,000 jobs globally to reduce costs.
Nissan's stock is down by nearly 19% this year, while Honda's shares were down nearly 15% year to date, as of Monday's close.
Although Honda and Nissan have touted the deal as a merger, the transaction would see Honda take a leading role in the combined entity.
Besides appointing the president of the new holding company, Honda will also nominate a majority of its board members.
"This is not a rescue," Honda's Mibe told reporters on Monday.
A prerequisite for the merger is for Nissan to complete its business turnaround, Mibe added.
Honda and Nissan are the second and third largest automakers in Japan, respectively.
If finalized, the merger would create the world's third largest automaker by volume. It would also be the largest domestic merger in Japanese automotive history.
