Honda and Nissan officially begin merger talks to create world’s third-largest automaker

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Japanese automakers Nissan and Honda on Monday announced they had entered into official talks to merge and create the world’s third-largest automaker by sales.

The proposed deal was first reported by Japan’s Nikkei newspaper on Dec. 17.

Both companies are grappling with intense global competition in the electric vehicle market from the likes of Tesla and China’s BYD.

Nissan shares spiked following the initial report. Analysts say the potential tie-up is a result of financial underperformance at the company and of the restructure of its longstanding partnership with France’s Renault.

In its most recent quarterly results, Nissan said it would cut 9,000 jobs and reduce global production capacity by a fifth.

The automaker has “been struggling in the market, it’s been struggling at home, it doesn’t have the right product line-up,” Peter Wells, professor of business and sustainability at Cardiff Business School’s Centre for Automotive Industry Research, told CNBC’s “Street Signs Europe” last week.

“There are so many warning signs, so many red flags around Nissan at the moment that something had to happen. Whether this is the answer is another question,” Wells added.

This is a breaking news story and will be updated shortly.

— CNBC’s Sam Meredith contributed to this story.

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