Fiat Chrysler, Peugeot owner PSA in talks to combine, says source

Fiat Chrysler and Peugeot ownerPSA are in talks to combine in a deal that could create a $50billion automaker, a source familiar with the matter said onTuesday.

The Wall Street Journal first reported the discussions. FiatChrysler shares rose sharply after the report and wereup more than 7.5 per centin late afternoon U.S. trading. The companieshad no comment.

Fiat Chrysler earlier this year broached a merger withFrench automaker Renault SA that ultimately collapsed.

Investors have speculated for several years that FiatChrysler was hunting for a merger partner, encouraged by therhetoric of the company's late chief executive, SergioMarchionne. In 2015, Marchionne outlined the case forconsolidation of the auto industry and tried unsuccessfully tointerest General Motorsin a deal.

Peugeot and Fiat Chrysler had discussed a combinationearlier this year, before Fiat Chrysler proposed a $35 billionmerger with Renault. At that time, Fiat Chrysler said a dealwith Renault offered more advantages than a combination withPeugeot.

Fiat Chrysler Chairman John Elkann broke off talks withRenault in June after French government officials intervened,and pushed for Renault to first resolve tensions with itsJapanese alliance partner, Nissan.

Following the collapse of the Renault merger plan, FiatChrysler CEO Mike Manley left the door open for talks withwould-be partners. But he said the Italian-American automakercould go it alone, despite mounting costs to develop electricvehicles and comply with tougher emissions rules in Europe, theUnited States and China.

Peugeot CEO Carlos Tavares dismissed the idea of acombination with Fiat Chrysler during a discussion withreporters at the Frankfurt auto show last month.

"We don't need it," Tavares said when asked whether he wasstill interested in a deal with Fiat Chrysler.

Tavares has moved aggressively to expand Peugeot, acquiringGerman auto brand Opel from General Motors for $2.6 billionin 2017. Since then, Tavares has overseen a turnaround at Opel.

Fiat Chrysler already has a commercial vehicle partnershipwith Peugeot.