French engine manufacturer Snecma is in merger talks with telecoms and systems and equipment group Sagem.

Sagem's board approved the proposal last week, while Snecma executives will meet this week to discuss the two-stage merger, which would involve a share swap as well as a cash element.

The project would run in parallel to a long-planned privatisation of state-owned Snecma, with one-third of shares in the new entity to be retained by the government.

The final stage of the plan would see a full merger in 2005, after both companies release their 2004 figures.

Sagem says the proposed merger is "designed to create a major industrial and technology group that is competitive on the global stage".

Analysts greeted the news with surprise, as there appear to be few synergies between the two companies' portfolios. The French government is embarking on a series of privatisations in the next few months, as it aims to reduce its budget deficit, and is thought to favour the creation of large industrial champions.

Source: Flight International