UPDATE 4-PSA board signs off on Fiat Chrysler merger -source

The board of French carmaker PSA, the owner of Peugeot, approved a binding agreement for a $50 billion merger with rival Fiat Chrysler, a source close to the matter said on Tuesday. A separate Fiat Chrysler (FCA) board meeting was underway to discuss finalizing the memorandum of understanding to create the world's number four carmaker, the source added, in a deal that would reshape the global car industry.

Both companies declined to comment. A source close to FCA had said earlier the two companies could announce the signing of a binding agreement early on Wednesday, followed by a conference call to explain further details later in the day.

The two mid-sized carmakers announced plans six weeks ago for a tie-up to help them deal with big challenges in the industry, including a global demand downturn and the need to develop costly cleaner cars to meet looming anti-pollution rules. Ahead of the meetings, entities representing the Peugeot family, Etablissements Peugeot Freres (EPF) and FFP, unanimously approved a proposed memorandum of understanding for the planned merger, a source familiar with the situation said.

FCA and PSA have said they would seek to finalize a deal by the end of the year to create a group with 8.7 million annual vehicle sales. That would put it fourth globally behind Volkswagen, Toyota, and the Renault-Nissan alliance. It was only six months ago that FCA abandoned merger talks with PSA's French rival Renault.

FCA would get access to PSA's more modern vehicle platforms, helping it to meet tough new emissions rules, while Europe-focused PSA would benefit from FCA's profitable U.S. business featuring brands such as Ram and Jeep. 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's Carlos Tavares will be chief executive and FCA's John Elkann - the scion of Italy's Agnelli family, which controls FCA through their holding company Exor - chairman of the combined company. The group will include the Fiat, Jeep, Dodge, Ram, Chrysler, Alfa Romeo, Maserati, Peugeot, DS, Opel, and Vauxhall brands, allowing it to serve mass and premium passenger car markets as well as those for trucks and light commercial vehicles.