Nissan and Mitsubishi stock pop because a Honda mega-merger might be coming

Nissan Motor ( NSANY ) stock is booming as the automaker reportedly prepares to explore a merger with Honda Motor ( HMC ), which would tie up Japan’s second and third-largest automakers.

Nikkei Asia reports that the automakers are considering operating under a holding company and plan to sign a memorandum of understanding. Eventually, they plan to bring Mitsubishi Motors ( MMTOF ) under the holding company, as Nissan is their largest shareholder.

Nissan has said that media reports indicating it is “considering a business integration” with Honda are not based on an official announcement.

Combined, the group would be the third-largest group of carmakers in the world, with sales of more than 8 million vehicles. Toyota Motor ( TM ) would still be the biggest automaker in Japan, having sold more than 11.2 million vehicles last year.

Honda and Nissan began exploring partnerships in March, although the companies said at the time that they would be focused on collaborating on electric vehicles and related components to better compete with Tesla ( TSLA ) and Chinese automakers. In August, they agreed to work together and added Mitsubishi as a potential third collaborator.

Honda CEO Toshihiro Mibe noted in August that the auto industry is in a “once in a century” transformation, while Mitsubishi CEO Takao Kato said that collaboration with other automakers is “essential in today’s automotive industry.”

Nissan stock shot up by more than 23% before trading closed in Tokyo on Wednesday, marking its best day since at least the 1980s, according to Factset data. Honda shares fell by about 3%. Mitsubishi shares jumped by almost 20%.

Renault ( RNSDF ), which works with Nissan on EVs, told Reuters that “on principle” it supports Nissan’s efforts to “restore business situation.” The French carmaker’s shares gained 2% on Tuesday.

Nikkei, citing people familiar with the negotiations, reports that the latest development in Honda and Nissan’s conversations came in response to a potential bid for the latter automaker from Taiwan’s Foxconn ( HNHPF ). The group, formally known as Hon Hai Precision Industry, has been making EVs for a few years now under the Luxgen brand and has been interested in entering markets outside Taiwan.

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