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(Bloomberg) -- Honda Motor Co.’s shares climbed over 17%, the most since August, after the carmaker said it would repurchase up to ¥1.1 trillion ($7 billion) in shares by next December, ahead of a deal that amounts to an acquisition of ailing peer Nissan Motor Co.
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Honda said it will buy back a maximum of 24% of outstanding shares between Jan. 6 and Dec. 23 next year in a release on Monday. The two carmakers announced that day a tentative agreement to set up a joint holding company that will aim to list shares in August 2026.
The buyback is seen as an attempt to abate concerns among Honda’s shareholders about the negative impact a tie-up with Nissan could have on the company. Honda was the best-performing company on the Nikkei 225 as of 11 a.m. in Tokyo, and the biggest contributor to gains on the benchmark Topix.
“The massive share buyback plan shows that Honda is trying to sweeten the pill of the merger with Nissan to shareholders,” wrote Julie Boote, an analyst at UK-based firm Pelham Smithers, in a report. Honda’s shares fell 3% after the possible collaboration came to light on Dec. 18, on worries it will have to bail Nissan out.
The share repurchase “is a sign that Honda is very focused on improving its capital structure and share price,” said Tatsuo Yoshida, a senior analyst at Bloomberg Intelligence. The large scale of the buyback plan was a surprise, he added.
By repurchasing such a large proportion of shares, Honda may be looking to influence the ratio of its eventual deal with Nissan, as the carmakers have agreed to base that ratio partly on their respective share prices, wrote Travis Lundy, an analyst at Quiddity Advisors, in a note on SmartKarma.
“This underscores the significantly advantageous position that Honda finds itself in,” Lundy added.
The positive impact from Monday’s buyback announcement will likely be short-lived, however, as the risks a Nissan deal poses to Honda become clear, said Seiji Sugiura, a senior analyst at Tokai Tokyo Intelligence Laboratory.
“I don’t know why Honda has decided to do this now, before Nissan has announced the details of its restructuring plan,” Sugiura said. “If you think about everything Honda will have to deal with, it’s a bit worrying.”
Nissan’s shares declined as much as 7% in early trade Tuesday but were little changed as of 11:30 a.m. The drawn-out Honda deal plan may be interpreted as delaying a necessary restructuring of Nissan management, said Sugiura.