PARIS/MILAN -- PSA Group has secured the backing of one of its major shareholders, the French government, for its plan to merge with Fiat Chrysler Automobiles, according to people familiar with the matter.
The French state, which holds roughly 12 percent in PSA and has board representation, is supporting a binding memorandum of understanding that could be approved this week, said the people, who asked not to be named because the deliberations are private.
PSA directors are scheduled to meet Tuesday to review the terms, which reflect minor changes to an accord unveiled Oct. 31, the people said.
The deal “makes sense in order to build a new champion with global scale to take on the challenges of sustainable mobility,” a French finance ministry official said in a statement Monday.
Representatives at PSA and Fiat declined to comment. BPI, the French state-backed investor that holds the stake, didn’t respond to requests for comment.
The carmakers sketched out at the end of October their plan to combine to create a regional powerhouse to challenge Volkswagen. The new company would be based in the Netherlands and headed by PSA CEO Carlos Tavares. Fiat Chrysler Chairman John Elkann would keep his role as chairman.
The deal will turn two mid-sized carmakers into a global giant, with sales of more than 8 million vehicles a year and a stable of brands including PSA’s Peugeot and Citroen and Fiat Chrysler’s Jeep, Alfa Romeo and Ram.
The automakers are responding to growing pressure on the industry to pool resources for product development, manufacturing and purchasing in the face of trade tensions, a global sales slowdown and an expensive shift toward electric and self-driving technology.
PSA shares rose as much as 1.2 percent and were trading 0.1 percent higher at 22 euros at 1:16 p.m. in Paris, giving the company a market value of 20 billion euros ($22 billion). Fiat increased 0.6 percent to 13.4 euros in Milan for a market capitalization of 21 billion euros.