The biggest gains in Europe were seen in auto manufacturing stocks after Fiat Chrysler Automobiles (FCA) and Renault confirmed they were discussing a merger. Carmakers are being pushed by regulators to develop electric vehicles to lower emissions.
The statement says the merged company would produce 8.7 million vehicles annually and save 5 billion euros for the companies each year by sharing research, purchasing and other activities.
Together, Fiat and Renault made about 8.7 million cars previous year, which would vault the pair past South Korea's Hyundai Motor Group and Detroit's General Motors Co. Should Renault's deal with Fiat go through, Nissan will now find itself chained to the larger entity through deeply integrated operations and cross-shareholdings with the French manufacturer.
Fiat Chrysler has been under pressure in Europe, stoking speculation it was looking for a partner as the industry is forced to consolidate in the face of declining demand and a costly switch into electric cars.
Renault's board is holding a special meeting at its headquarters in the Paris suburb of Boulogne-Billancourt on Monday morning about the merger.
Both companies stand to gain tremendously from such a deal, with Renault accessing the North American market, while FCA would gain entry in the Russian market - a space now occupied by Renault with major sales. Since then, Nissan in Japan has warily gone along with the Alliance; Nissan is far more profitable than Renault, but its voting stake is much smaller.
"FCA fits as well with Renault as it does with PSA", Jefferies analyst Philippe Houchois said in a note.
Fiat has conditioned its own merger talks with Renault to the French carmaker agreeing not to pursue a transaction with Nissan in the short term, the people said. A tie-up between Daimler and Chrysler in the 1990s was billed as a merger of equals, but it eventually collapsed amid cultural differences and recriminations. Falling sales in the world's biggest markets - China, the United States and Europe - have brought fresh urgency to consolidate.More news: Serena’s warmup jacket is fit for a ‘queen’ and ‘goddess’
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It is believed officials would want to see certainties around employment and production due to the thousands of French employees now working for Renault.
Fiat Chrysler's offer comes at a key moment for Renault.
During an earnings conference call earlier this month, FCA CEO Mike Manley told shareholders that he believed that there would be "significant opportunities" in terms of strategic partnerships or alliances in the next two or three years.
The French government, which holds a 15% stake in Renault, also voiced its support.
What happens to jobs is likely to be a source of concern.
Italian officials sounded open to the deal.
"Nissan has not been involved in this dossier", the source noted.
Renault, which is partly owned by the French government, already has a three-way partnership with two Japanese companies - Nissan and Mitsubishi.
"It's a powerful combination in theory", he said, "but aiming for a single, aligned automotive entity, with everyone rowing in the same direction, might not be realistic".