Fiat Chrysler, Peugeot to create Dollars 50 billion auto giant?

Peugeot 508 Hybrid

Analysts believe that this could ring some alarm bells with the regulators in the U.S. who would be overlooking the merger, where the Committee on Foreign Investment in the United States has been keeping a close watch on all Chinese-related deal making involving USA companies and technology. Therefore, the emergence of the second-biggest vehicle manufacturer in the world was averted. PSA's board is holding an extraordinary meeting later Wednesday, said the people who asked not to be named because the information isn't public.

Adjusting for the differences in market values and a 5.5 billion-euro dividend being paid out to Fiat Chrysler shareholders, "achieving a 50/50 shareholding suggests PSA is paying a 32% premium to assume control of FCA", Jefferies analyst Philippe Houchois said in a note. Both have strong shareholder participation by the founding families - the Peugeots in France and the heirs to the Agnelli family in Italy, represented by Elkann.

Although Chrysler is still perceived as an American vehicle brand with popular models like the Dodge Caravan, Dodge Ram trucks and Jeep 4X4 models, the company has been wholly-owned by Fiat since 2014.

Meanwhile, the deal would give PSA a stronger position in north America, where FCA makes the vast bulk of its profits.

As the auto industry is racing to transition from internal combustion engines to low-emission electric vehicles and the industry braces for an autonomous driving environment, there is a sense in scaling up the size of industrial conglomerates, creating scope for a bigger investment in research and development.

FCA aims to jump into the electric auto market and the production of self-driving cars and sees PSA's expertise on the development of technologies as an advantage in the field.

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PSA's Carlos Tavares would be CEO and Fiat Chrysler's (FCA) John Elkann chairman.

Thursday's statement from the PSA Group and Fiat Chrysler suggests that the French government, which owns around 15% of PSA, supports the deal.

Potential FCA partners included Volkswagen AG, Hyundai, while talks with Renault were called off earlier this year. However, the Italian-American carmaker instead pursued a deal with Renault. The deal appeared to be moving forward quickly, at least until Renault's own Japanese affiliate, Nissan, began raising objections.

Groupe PSA, which includes Peugeot, Citroen, DS, Opel, and Vauxhall, has joined forces with Italian-American automotive giant, Fiat Chrysler Automobiles (FCA). Fiat Chrysler "is not facing very good times, and it seems it's getting worse as the time passes", he added. The only exception is that the Peugeots could increase their stake by up to 2.5% during the first three years by buying shares from Dongfeng and the French investment bank. "The focus will be Europe", he said.

Fiat Chrysler shares are down 8.5 percent this year while Peugeot has risen 33.3 percent.

Soon after, the recession hit in the US which led to an unpreceded government bailout of the USA auto industry, which led to US automakers Chrysler and General Motors to file for bankruptcy protection.

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