Fiat Industrial said it will merge with its U.S.-based unit CNH to simplify its structure, increase its access to American capital markets, and eliminate the discount at which it trades relative to its peers.
The deal, announced on Wednesday, would see the Italian trucks and capital goods group and its U.S. farm and construction equipment subsidiary form a new company listed on the New York Stock Exchange, with a secondary listing somewhere in Europe.
Fiat Industrial, which already owns 88 per cent of CNH, said the merger would not lead to any job losses or affect operations at either company.
As there was no mention of seeking a listing in Italy, speculation is likely to arise that Fiat Industrial will be pulled from the Italian exchange.
The Italian group is the world's third-largest capital goods group by revenues, after Caterpillar Inc. of the United States and AB Volvo of Sweden.
Sergio Marchionne, Fiat Industrial's chairman, called the transaction the "natural extension of the process of simplification of the Fiat world."
"Our credit profile will increase and we will have a much broader liquidity pool," Mr. Marchionne told analysts and media in a conference call on Wednesday.
Fiat split its industrial arm, which owns the truck maker Iveco, from its auto making division in January, 2011, in a bid to unlock value at both businesses and give them more room to manoeuvre independently.
However, Fiat Industrial and CNH's shares still trade at a discount to rivals such as Scania, John Deere and Caterpillar.
"We are suffering from a holding company discount," Mr. Marchionne said. "It has not gone away as the result of the separation of Fiat Industrial from Fiat."
The group's chairman also said the merger would help the group strategically by bringing their respective overseas divisions and financial services units together, and give CNH direct access to the engine knowhow of Fiat's FPT Industrial division.
CNH's board was informed of the proposed merger by phone after Tuesday midnight European time. Neither company's shareholders will be offered a premium, and they will be merged using a share ratio based on their recent stock market prices before there was any talk of the deal.
The merger must still be approved by regulators and the two companies' boards and shareholders. Fiat Industrial said it would vote all of its CNH shares in favour of the deal.
Fiat Industrial's shares were up 2 per cent in early afternoon trading in Milan, giving the company a market value of more than €10-billion ($12.7-billion).
The tie-up will mark the latest step in Mr. Marchionne's drive to reorder and internationalize Fiat, which he has run since 2004.
Fiat's autos arm last year took majority control of U.S. car maker Chrysler, in which it now owns 58.5 per cent, and which Mr. Marchionne says he wants to float by 2014.