Danfoss and Sauer want to merge their hydraulics activities to create what they claim will be the world`s largest supplier of mobile hydraulics systems. The boards of the two companies are involved in negotiations which they hope will result in a "merger of equals" within two months.

The combined business, Sauer-Danfoss, will employ about 6,200 people in Europe, the Americas and Asia, and will have sales of some $860m. The companies say that any rationalisation of the workforce or facilities will be "limited" because there is little overlap between the two businesses.

The aim of the merger is to create a global market leader in the mobile hydraulics industry, bringing together the "complementary strengths" of Danfoss in the areas of steering and work function hydraulics, and Sauer in the areas of propulsion and electrohydraulic controls.

The new business will have headquarters in Norborg, Denmark, Neumunster, Germany and Ames, Iowa. The chairman will be Klaus Murmannn (from Sauer) and the vice-chairman Jorgen Clausen (from Danfoss). Sauer`s Tonio Barlage is expected to become chief executive with Niels Erik Hansen and David Pfeifle as executive vice-presidents.

At present, Danfoss Fluid Power employs around 2,500 people with engineering and manufacturing sites in Denmark, the US and Poland. With sales of around $300m, it represents about 16% of Danfoss` total business.

Sauer employs some 3,700 people, working primarily on hydraulic systems for off-road mobile equipment. It has headquarters in Germany and the US and manufacturing operations in Europe, the US and China. Its global sales are worth around $560m.