"The combined company would realize among the highest margins in the markets where it would operate, based on FCA's strength in North America and Latin America and Groupe PSA's in Europe," a joint statement said.
The merged auto giant is expected to clock annual unit sales of 8.7 million vehicles and combined revenues of nearly euro 170 billion.
The proposed merger would allow Groupe PSA to leverage FCA's presence in the US while FCA would get market access in Europe where Groupe PSA has enormous presence.
FCA has a wide portfolio of brands such as Alfa Romeo, Chrysler, Dodge, Fiat, Jeep, Lancia, Ram and Maserati. The Groupe PSA has five car brands - Peugeot, Citroen, DS, Opel and Vauxhall.
FCA has its presence in India with the Jeep brand. The Groupe PSA has plans to introduce the Citron brand in the country.
"The combination would unite the groups' respective brand strengths across luxury, premium, mainstream passenger car, SUV and trucks & light commercial - making them stronger together," the press note said.
The two companies announced that they would join forces to build a world leader for a new era in sustainable mobility.
The joint statement said that supervisory Board of Peugeot S.A. and the Board of Directors of Fiat Chrysler Automobiles had unanimously agreed to work towards a full combination of their respective businesses by way of a 50/50 merger.
"Both boards have given the mandate to their respective teams to finalize the discussions to reach a binding Memorandum of Understanding in the coming weeks," the statement said.
As per the deal, the shareholders of each company would own 50 per cent of the equity of the newly combined group and would therefore share equally in the benefits arising from the combination.
The transaction would be affected by way of a merger under a Dutch parent company and the governance structure of the new company would be balanced between the contributing shareholders, with the majority of the directors being independent.
The Board would be composed of 11 members. Five Board members would be nominated by FCA and five would be nominated by Groupe PSA.
( With inputs from IANS )