The deal still requires approval of the Fiat Chrysler board. Peugeot's board approved the proposal on Wednesday, according to a report in The Wall Street Journal. The two companies confirmed in separate statements they were in discussions over the merger. If approved, the new company would have a market volume of about $50 billion.
Fiat Chrysler's spiked higher and closed the session up 5.34% at $14.98.
Fiat Chrysler backed out of a proposed merger with Renault this past summer, but the company has continued to seek an alliance as it faces major investments in European emissions compliance and new technologies in autonomous driving and electric engines.
It also comes as auto makers face the propsects of a global drop in demand that has been particularly pronounced in Europe.
"We view the combination of these two companies as reasonable given global competition, high capital intensity, and industry disruption from electrified powertrain as well as autonomous technologies," Morningstar senior equity analyst Richard Hilgert said in a note quoted by Automotive News Europe.
Fourth Largest Car Maker
If the merger gains final approval, it would move Fiat Chrysler past General Motors Company (NYSE: GM) into fourth place among the world's largest automakers by number of vehicles sold, behind Volkswagen AG (OTC: VWAGY), Toyota Motor Corp. (NYSE: TM) and the partnership operation of Renault SA (OTC: RNLSY) and Nissan Motor Co. Ltd (OTC: NSANY).
WSJ reported Fiat Chrysler Chairman John Elkann would be chairman of the new company while Peugeot CEO Carlos Tavares would keep that role at the combined firm.
The report said it wasn't clear yet what size stake each companies' major shareholders would own under the deal. Major owners of PSA Group include China's Dongfeng Motor Group, the Peugeot family, and the French government, which each hold about 14% of the company's shares.
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