UPDATE 1-Fiat Industrial and CNH merger could face delay-sources

* Independent directors question share swap terms

* Merger completion unlikely this year

* Both companies decline to comment

(Adds background, investor comment)

By Jennifer Clark

MILAN, Oct 3 (Reuters) - Fiat Industrial's , plans to combine with CNH Global NV could be delayed after independent directors of the U.S. farm and construction equipment maker questioned the share swap terms of the deal, sources familiar with the matter said.

The Italian truck and construction equipment maker, spun off from automaker Fiat in 2011, is seeking a merger with its 88 percent-owned tractor subsidiary to compete more effectively with heavy equipment maker Caterpillar and other peers in both scale and investor appeal.

Fiat Industrial had aimed to win approval from the U.S. farm equipment maker's board on Oct. 30 and complete the merger this year. But this now looks unlikely and may even run into 2013 after independent CNH directors raised doubts about the share swap terms for the all-paper offer, two people with knowledge of the discussions said. They asked not to be identified because the talks are confidential.

The merger is "running into problems because the independent board members are having doubts about the share swap ratios," one of the sources said. "It looks unlikely that everything will be ready by the end of the year."

Fiat Industrial and CNH Global both declined to comment.

CNH said on July 12 its board had set up a "special committee" to evaluate Fiat Industrial's proposal.

The merger would increase the liquidity of Fiat Industrial stock and "build a true peer" to the likes of Caterpillar and Deere & Co , the Italian company said in May.

It is also seen by analysts as a possible blueprint for Fiat's planned buyout of the 58.5 percent stake it does not already own in U.S. carmaker Chrysler - although Chief Executive Sergio Marchionne has played down any similarity.

"The timing is neither right nor the conditions present" to compare the two transactions, Marchionne said on May 30 when presenting the Fiat Industrial offer to investors.

Under the current merger proposal, investors in CNH and Fiat Industrial would receive new shares at a swap ratio based on market prices in March and April, before the plan was publicly disclosed.

But CNH stock has been trading below the rest of the sector in relation to earnings, fueling concern among investors that they are being sold short.

A May 30 investor presentation by Fiat Industrial showed CNH's enterprise value at 3.2 times earnings before interest, tax, depreciation and amortization.

That compared with multiples of 6.3 for Deere, 6.1 for Caterpillar and 6.4 for Scania, the Swedish truckmaker controlled by Volkswagen .

Investor Mario Gabelli of Gabelli & Co. asset management fund voiced dissatisfaction with the deal value at the time.

"The public (trading price) does not reflect the underlying value of the business," he said.

The proposed share swap includes no premium for CNH or FI shareholders because the combination is not expected to generate significant near-term savings.

The new, combined company will be domiciled in the Netherlands, and traded on the New York Stock Exchange, a move that could also take Fiat Industrial's main stock-market listing out of Milan.

(Editing by Mike Nesbit)

((jennifer.clark1@thomsonreuters.com)(+3902 66129422))