CNH Global set up a board committee to investigate plans for its merger into its largest shareholder, Fiat Industrial Group, although there are significant doubts over the tractor maker's powers to derail the $13bn deal.
The maker of Case and New Holland farm equipment said that a committee of independent directors, advised by its own financial and legal team, would "evaluate the proposal" to fold the group into Fiat Industrial, the maker of Iveco trucks.
The tie-up would create a group with a combined market value of $13bn domiciled in the Netherlands. Fiat Industrial is currently based in Italy.
The combined company would be listed in New York, where CNH already trades, with a secondary listing in Europe - although not necessarily Milan, where Fiat Industrial stock is traded.
'Holds all the cards'
The deal, which Sergio Marchionne, the Fiat Industrial chairman, said it was "important" to complete by the end of year, requires the approval of both Fiat Industrial and CNH boards.
However, given that Fiat Industrial owns 88% of CNH, there were doubts, even if the tractor maker rejects the deal, of its ability to withstand a tie-up.
"Fiat Industrial appears to hold all the cards in this one," a person familiar with the deal told Agrimoney.com.
"It wants a deal, and has the power to get one."
No vote
Mr Marchionne said that owners of the outstanding 12% of CNH "will not have a separate vote on the transaction, and Fiat Industrial intends to vote all of its shareholding in CNH in favour of the proposed transaction".
He also said that Fiat Industrial "does not intend to consider other structures" for a tie-up, and "specifically is not interested in making a cash offer for the CNH minority shares".
CNH stock fell 2.8% to end at $40.08 in New York, while Fiat Industrial shares closed 1.0% higher at E7.965 in Milan.
A CNH spokesperson said that the group was not commenting on the proposed deal, beyond the statement announcing the set-up of the independent committee.
Tie-up benefits
Mr Marchionne said that the deal would resolve an "unwieldy" and "cumbersome" structure, which depresses the groups' valuations, hampers deal-making "while inviting arbitrageurs to exploit inefficiencies at the expense of shareholders in both companies".
The tie-up "would enhance the value of the Fiat Industrial Group to international investors", and release "a number of" operational benefits, including better use of treasury operations.