PSA Group (UG.PA), the French owner of Peugeot, is considering a merger with Italian-American Fiat Chrysler (FCAU) in a move that would create a car giant worth nearly $50bn, the companies confirmed on Wednesday.
Both firms said that the discussions were focused on creating one of the “world’s leading automotive groups.”
The news comes after talks about a proposed merger between Fiat Chrysler and Renault collapsed earlier this year.
Fiat Chrysler has long signalled that it believes consolidation to be necessary in the car industry, which is contending with trade war headwinds and the rise of the climate change movement.
According to reports, the deal could come in the form of an all-stock merger, which would create a combined group with a market capitalisation of around $47bn (£36bn).
Under that proposal PSA CEO Carlos Tavares would lead the company, while John Elkann, the head of the Agnelli family that controls Fiat Chrysler, would become its chairman.
In addition to the Fiat, Chrysler, and Peugeot brands, the Alfa Romeo, Citroen, Jeep, Opel, and Vauxhall brands would all be controlled by the same group if the merger goes ahead.
The combination would create Europe’s second-largest car group, after the Volkswagen group. While PSA does not currently operate in the US market, it has laid out plans to expand there within the next few years.
Fiat Chrysler, on the other hand, has been looking to scale up its presence in Europe.
The company in June withdrew its offer for a €33bn (£28bn) merger with Renault, after the French government, which is Renault’s largest shareholder, signalled that it did not support the deal.
PSA has also indicated that it is interested in potential tie-ups with other car companies. Tavares said in April that he would consider the purchase of the Jaguar Land Rover, the UK’s largest carmaker.
But Indian owner Tata said that Jaguar Land Rover was not up for sale.
Shares in PSA were up by more than 7% on Wednesday, while Fiat Chrysler finished out Tuesday up nearly 8% amid reports of the merger.