Alcan's shareholders will own 44 per cent of the enlarged group, leaving Pechiney with 29 per cent and Alusuisse with 27 per cent.
Alcan president Jacques Bougie is expected to head the group, with Pechiney chairman Jean Pierre Rodier as chief operating officer. Before the merger can go ahead, Alusuisse will demerge its chemicals arm, Lonza, to create a separately listed company with a market value of $4bn (pounds 2.5bn).
Although a three-way memorandum of understanding will be drawn up by Alcan, Alusuisse and Pechiney demonstrating their intention to merge, the initial merger agreement will be limited to Alcan and Alusuisse. Pechiney is bound by European labour laws to consult its workers' council first.
The three companies will face regulatory hurdles in both Europe and the US before the deal can go ahead, but analysts do not expect any major issues to thwart the deal.
Nick Hatch, an analyst at Flemings Global Mining Group, said it was unlikely the merger would affect UK jobs or smelting capacity as there is little overlap between the three companies' activities here.
The news of the mega-merger follows a series of moves to rationalise and streamline the aluminium sector as weak prices hit profits.
This year Alusuisse failed to agree a merger with Germany's Viag. Pascal Franc, a fund manager at Mirabaud & Cie in Geneva, said: "Sergio Marchionne [Algroup's chief executive] has to get this one right. Two failures in a year could cost him his job."
The companies fit well geographically and in terms of products. Pechiney and Alusuisse have strong market positions in Europe, while Alcan is strongest in North and Latin America.
Total 1998 revenue for the three groups together was $24.8bn (pounds 15.4bn), beating leader, Alcoa, whose sales were $15.5bn.Reuse content