Both companies "have each unanimously agreed to work towards a full combination of their respective businesses by way of a 50/50 merger", said the statement.
PSA Group yesterday confirmed discussions are being held over a tie-up to create a auto manufacturing giant worth nearly £40 billion.
However, the deal could still face close regulatory scrutiny, while governments in Rome, Paris and unions are all likely to be wary about potential job losses from a combined workforce of around 400,000.
PSA shares fell as much as 14% to a two-week low of €22.33. The two firms projected that 80 percent of the synergies would be achieved after four years.
The merger would bring together Italian-American Fiat Chrysler, with its strong footprint in North America where it makes at least two-thirds of its profits, and France's PSA Peugeot, the No. 2 automaker in Europe. Combined, the two companies sold 8.7 million cars past year, topping General Motors and coming behind of Volkswagen and Toyota.
Still, Yale Zhang, founder of consultancy AutoForesight Shanghai Co., said such "non-auto industry elements" make it harder to predict whether Dongfeng will remain a shareholder.
Murphy also raised concerns that the merger could alienate USA buyers, lowering the potential benefit of the two automakers combining.
FCA is no stranger to merger talks.
The French government, which owns around a 12.2% stake in Renault, as well as owning a 13.7% stake in PSA.
Italian industry minister Stefano Patuanelli said the deal was good news provided it didn't affect jobs in Italy. FCA's John Elkann would act as the Chairman and Peugeot's Carlos Tavares will become as CEO and member of the Board. The company has sought to secure its future with a larger partner for several years, dating back to late CEO Sergio Marchionne's failed courtship of General Motors Co.
Under the proposal, shareholders of each company would own 50 percent of the combined entity, the statement said. Opel is based in Germany.
A similar move with FCA could fuel opposition in Italy.
Daniel Larrouturou at asset management firm Dom Finance said the reaction of PSA shareholders was due to its market capitalisation being larger than Fiat Chrysler's. The shareholders of PSA receive the 46 percent interest that the French automaker has in vehicle parts manufacturer Faurecia. Meanwhile, PSA shares climbed more than 6% in Paris. That helps us fund This Is Money, and keep it free to use.
Stricter anti-pollution rules from 2021 have triggered heavy investments into electric and hybrid vehicles as European lawmakers forced a 37.5% cut in carbon dioxide emissions between 2021 and 2030, after a 40% emissions cut between 2007 and 2021.
Peugeot's board of directors approved the deal earlier Wednesday while the FCA board is meeting later this evening to review the final terms.
PSA declined to comment and Fiat Chrysler did not return requests for comment.
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