Frankfurt/Hong Kong: Indian car wiring maker Motherson Sumi Systems Ltd is in early talks with German peer Leoni AG over a possible merger of the pair, two people close to the matter said.

The car industry and its suppliers, facing a regulatory crackdown on diesel emissions and a slump in China, have issued a slew of profit warnings in recent months and companies are shaking up their businesses in order to adapt.Motherson Sumi has snapped up a number of companies in recent years, adding to its range of automotive interior products including rearview mirrors, wiring harnesses and rubber and plastic components.

The company, a joint venture between India’s Samvardhana Motherson Group and Japan’s Sumitomo Wiring Systems, has been scouting for a sizeable acquisition target in Europe with the help of an investment bank.

Any deal with Leoni could be worth more than €1 billion ($1.1 billion) but financing still needs to be worked out, one of the people said.

The exact deal structure was still unclear, and deliberations may not succeed, the people cited above added.

An acquisition of Leoni would add to Motherson Sumi’s 180 facilities across 37 countries and bolster overseas sales.

Motherson Sumi informed the stock exchange on Friday that it keeps “examining and evaluating" business opportunities globally and it would make necessary disclosures when needed.

Leoni declined to comment.

Shares in Leoni, which has a market cap of $7.1 billion, ended up 18% on Thursday in their biggest one-day gain in nearly a decade.

The stock has slumped more than 50% this year as demand stagnated, with Leoni citing rising global trade tensions and stricter emissions rules for slowing business. Shares in Motherson Sumi rose as much as 10.8% on Friday, and was trading up 2.3% by 0844 GMT.

Motherson Sumi most recently acquired Reydel Automotive, which manufactures door panels and cockpit modules, for about $200 million to help meet its target of not having any component, customer or country contribute more than 15% to its business by 2020.

Reuters’s Aditi Shah and Alexander Hübner contributed to this story.

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