According to the Detroit Free Press, the combined companies would have revenues of $189 billion and profits of more than $12 billion.
The automakers said that the new company would be able to meet the challenges of powertrain electrification, connectivity and autonomous driving "with speed and capital efficiency".
Shares of Fiat Chrysler jumped 10% Thursday after the two sides announced the deal, billed as a 50-50 merger.
The management teams of FCA and PSA will seek to finalise the discussions in the coming weeks to create a group with 8.7 million in annual vehicle sales and make savings of 3.7 billion euros ($4.1 billion), even without plant closures, they said.
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While Exor NV also holds a 23 percent stake in luxury sports auto marque Ferrari, PSA on the other hand sees a 12.2 percent stake in Peugeot by China's state-run Donfeng Motor Group Company.
This is the second attempt by Fiat-Chrysler to merge the non-German European champions in Europe, creating a Franco-Italian conglomerate with global outreach. Five members would be nominated by FCA (including John Elkann as chairman) and five would be nominated by Groupe PSA (including the senior independent director and the vice chairman). "I'm pleased with the work already done with Mike and will be very happy to work with him to build a great company together", said PSA CEO Carlos Tavares.
A merger of Fiat Chrysler and PSA, the No. 2 for vehicle sales in Europe, would create a regional powerhouse to challenge Volkswagen AG. FCA sold 5.8 million and PSA 3.9 million.
FCA said the French government scuppered those talks over the role of Nissan in a reformed entity, but there were also brewing issues with French unions, and ongoing turmoil among Renault and Nissan leadership thanks to continuing fallout from ex-CEO Carlos Ghosn's arrest previous year. The deal would bring under one roof global brands such as Alfa Romeo, Citroen, Jeep, Opel, Peugeot and Vauxhall.
French Finance Minister Bruno Le Maire said in a statement on Thursday he welcomed the current deal but said France would be "vigilant on the preservation of its industrial footprint" and the location of its head offices.
"The Chinese government doesn't want to have a strong connection with an American company", Dudenhoeffer said, due to economic damage brought by the Trump administration's tariffs.
Both companies have strong shareholder participation by the founding families - the Peugeots in France and the heirs to the Agnelli family in Italy, represented by Elkann.