Renault and Nissan Motor are talking about merging, souces have told Bloomberg News.
Such a deal would end the current alliance between the companies and marry them as one corporation, the anonymous sources said.
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The report noted Renault currently owns 43% of Nissan while Nissan holds 15% of Renault. Carlos Ghosn, the chairman of both companies, is driving the negotiations and would run the combined entity, the Bloomsberg sources said.
Bloomberg said the alliance of Renault and Nissan has brought savings but the fragmented ownership structure has prevented the companies from reaping full benefits from their union.
"Size matters in the auto industry," Janet Lewis, a Macquarie analyst in Tokyo, told Bloomberg. "The concern has always primarily been the French government, and somewhat Japan, because both France and Japan like to keep their national champions."
The parties are discussing a deal in which Nissan would essentially give Renault shareholders stock in the new company, the sources said. Nissan shareholders would also receive shares in the new company in exchange for their holdings, they added. The automaker may maintain headquarters in both Japan and France.
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By GlobalDataBut getting a deal done could prove very difficult, the Bloomberg sources said. The French government owns 15% of Renault and may be reluctant to relinquish control over its stake or have its position diluted. Both the French and Japanese governments would also have to approve a deal and may have strong opinions on where the combined company is domiciled, the sources said.
Bloomberg said one possibility would be to base the company in London or the Netherlands, where Fiat Chrysler NV has its corporate charter. It maintains headquarters in both Italy and the US.
No final decisions have been made and the talks, which have been ongoing for several months, may not result in a deal, Bloomberg's sources said.
Various spokesmen for the automakers declined to comment to Bloomberg.
The report noted that Reuters had said earlier this month Nissan was in talks to buy the bulk of the French government's stake in Renault, a report also citing unidentified sources. The Renault-Nissan alliance had said at the time any discussion about a share transaction involving the parties was "pure speculation".
