(Bloomberg) -- China FAW Group Co. is moving forward with preparations for a potential bid for the Iveco truck and bus business owned by the billionaire Agnelli family’s CNH Industrial NV, people with knowledge of the matter said.

The Chinese automotive group has progressed with due diligence on Iveco and is working toward making a formal offer in the coming months, according to the people. FAW still needs to conduct site visits at Iveco’s factories, one of the people said, asking not to be identified becuase the information is private.

Shares of CNH erased most of Monday’s early losses and were trading down 0.8% at 12:20 p.m. in New York, giving the company a market value of about $20.8 billion.

CNH has been holding talks with FAW since last year on a potential deal for Iveco. It already rejected an initial proposal from the Chinese company valuing the business at around 3 billion euros ($3.5 billion), the people said.

FAW is carefully evaluating the position of the European countries involved before presenting a proposal, according to the people. It will need to assuage concerns the French and Italian governments have about maintaining production in the countries and limiting any layoffs, they said.

Iveco’s financing arm could emerge as another sticking point, since a takeover of the business by state-owned FAW would require approvals from European regulators, the people said. No final decisions have been made, and there’s no certainty the deliberations will lead to a firm offer, the people said.

Business Split

CNH announced plans in 2019 to split its business making agricultural equipment from its commercial vehicle operations. Those efforts have been delayed by the coronavirus pandemic.

Chief Executive Officer Scott Wine said on an analyst conference call last month that CNH remains “very committed” to the separation plan and has been engaging with at least one interested party, though it would be too far to say that it prefers a sale to a spinoff. CNH confirmed in January that it was having preliminary discussions with FAW over Iveco.

A representative for CNH declined to comment, while a spokesperson for FAW couldn’t immediately be reached for comment outside regular business hours in China.

Italy’s economic development minister, Giancarlo Giorgetti, told lawmakers earlier this month the country needs to work out a “defense strategy” regarding Iveco. A spokesperson for Giorgetti didn’t reply to requests for further comment. A representative for the French finance ministry also didn’t immediately respond to queries.

A sale of one of Europe’s most iconic truckmakers could shake up the sector as well as potentially attract domestic criticism of the Agnelli family for selling one of its historical assets to a foreign buyer. John Elkann, the 44-year-old leader of the billionaire clan that founded Fiat, has been on a dealmaking spree over the past few years as he lessened the family’s dependence on automotive investments and moved into new areas such as luxury goods and financial services.

The Agnellis’ Fiat Chrysler Automobiles NV agreed in 2018 to sell its auto-parts business Magneti Marelli to Japan’s Calsonic Kansei Corp. Earlier this year, Fiat Chrysler completed a combination with Peugeot manufacturer PSA Group to form Stellantis NV, the world’s fourth-biggest carmaker. The deal saw the sway of the Agnelli family reduced, although its Exor NV holding company remains the combined company’s single biggest shareholder.

(Updates with share movement in third paragraph)

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