German tank manufacturer Krauss-Maffei Wegmann (KMW) has signed a heads of agreement with French company Nexter Systems to establish a new joint holding company.
The new company creates a European defence technology group employing more than 6,000 people, with a current annual turnover of nearly €2bn and order book of approximately €6.5bn.
In a joint statement, the companies said that the strategic alignment enables jobs and skills to be retained in the heart of the European Union (EU), and marks a decisive step for the consolidation of the European defence technology industry.
"The alliance of KMW and Nexter creates a group with the momentum and innovative force required to succeed and prosper in international competition," the statement said.
"In addition, it offers to its European and Nato customers the opportunity of increased standardisation and interoperability for their defence equipment, with a dependable industrial base."
French state controlled company GIAT Industries and Wegmann, owners of Nexter and KMW respectively, will take a 50% stake each in the combined group.
An unnamed German Government source was quoted by Reuters as saying that the merger will create Europe's largest producer of ground armaments, including tanks, as both companies struggle to cope with European military budget cuts and reduced defence spending.
The two companies are now planning to perform due-diligence assessments, and the joint company is likely to become operational in the second quarter of 2015, pending legal and customary regulation approvals.
Expected to be named 'Kant', the new company may surpass BAE Systems and US-based General Dynamics (GD), in terms of European ground armaments sales, according to Reuters.