The proposed deal aims to unify operations under a joint holding company, led by Honda, while maintaining the distinct identities of each brand, according to Honda's president, Toshihiro Mibe. If finalized, the merger would position the combined entity to better compete with market leaders Toyota and Volkswagen.

The merger talks come amid competition from China in the auto industry and the increasing popularity of electric vehicles.

U.S.-listed shares of Honda Motor Co. soared on Monday as the Japanese automobile maker made its merger talks with Nissan official and announced a hefty share buyback. If a merger were to happen, some believe it would be a sign of much-needed consolidation in the auto industry.