We have just received some information that the two brands are in fact in the early stages of an agreement.

BMW and Daimler have agreed (in principle) to work in cooperation for purchasing and in research and development. This is still in the early stages but we have learned that BMW pressured Daimler into this via stock owners of both companies. BMW is (the Quandts) seeking a minority share in Daimler AG to ensure long-term cooperation and an ex-BMW board member on the board of Daimler.

This agreement once finalized will be limited. It will only be relative to new technology and to lowering emissions. This cooperation is much like the current agreement for hybrid technologies but now will also include purchasing and development of other electronics. The agreement or one like it is necessary for the two to achieve greater economies of scale and to lower the R&D costs associated with developing lower emissions vehicles that will soon be required in many countries.

The original story about discussions being underway can be attributed to the AP via Business Week here