Fiat Chrysler is poised to announce an operational tie-up with Renault as soon as Monday that could lead to a full merger of the French and Italian-American companies and create the world's third-biggest automaker.
In a statement, the Italian auto manufacturer said the merged company would be 50% owned by FCA shareholders and 50% by Renault shareholders.
Industry shifts toward electric models, along with stricter emissions standards and the development of new technologies for autonomous vehicles, have put increasing pressure on carmakers to consolidate.
As alliance partners, Nissan and its affiliate Mitsubishi would benefit from an estimated 1 billion euros in annual savings from the merger, FCA added.
Early areas for potential convergence include Renault's next electric auto platform being launched at its Douai site in France, the source said, adding all of Renault's board members backed the decision to study FCA's proposal with the exception of the leftist CGT union, which abstained. Representatives from the two companies declined to comment.
While FCA has recently revived discussions with PSA Group - which have been recurrent over the years - Renault is seeking a merger with Nissan, its partner in a troubled 20-year-old alliance.
The French government, which owns a 15 per cent stake in Renault, supports the merger in principle would want to see more details, its main spokeswoman said on Monday.
That prospect did not play out, and it may be up to FCA to provide a relatively soft landing for Renault.
Renault shares surged as much as 16.7%, while Fiat rose as much as 19.5%, the most ever.More news: Maajid Nawaz: Britain Is Now On A Trajectory To No Deal Brexit
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The Renault-Nissan partnership, underpinned by cross shareholdings, has been strained by the scandal surrounding former Chairman Carlos Ghosn, who was ousted after his arrest a year ago.
FCA chief Mike Manley said earlier this month in Milan that his company would play an "active and constructive" role in this process.
In contrast, Renault is an electric-car pioneer with relatively fuel-efficient engine technologies and a strong presence in emerging markets including Russian Federation, but it has no presence in North America.
Ghosn's removal from the helm of the Franco-Japanese partnership brought simmering tensions to the surface, with Nissan so far rejecting a French push for a merger.
Adding Fiat and Renault, along with its Japanese partners would bring the total to more 15 million vehicles a year, with a strong presence in all major markets and premium brands like Jeep, Maserati, Alfa Romeo and Infiniti under a common umbrella.
This would be chaired by John Elkann, head of the Agnelli family that controls 29 per cent of FCA, sources familiar with the talks told Reuters, while Renault chairman Jean-Dominique Senard would likely become CEO.
Nissan and Renault, with headquarters 10,000 kilometres (6,000 miles) apart and very different histories and cultures, have always been seen as unlikely bedfellows and Ghosn was instrumental in keeping the alliance together.
FCA said there will be no plant closures as a result of the consolidation. Sales dropped five percent to 24.48 billion euros.