France's two biggest aircraft parts makers are poised to combine after engine maker Safran (SAFRY) agreed an almost €10 billion ($10.5 billion) bid for troubled plane-interior maker Zodiac Aerospace (ZODFY) .

Safran will offer €29.47 per Zodiac share, a 26% premium to Zodiac's Wednesday closing price. Assuming that at least 50% of the target's shareholders accept the bid, Safran will then proceed with a merger based on an exchange ratio of one Safran share for 2.062 of a Zodiac share, equating to €32.62 per share based on Safran's closing price on Wednesday.

Safran will also issue a special dividend of €5.5 per share, or a total €2.3 billion, to its own shareholders ahead of the finalization of the merger.

Zodiac shares traded Thursday at €28.46, up 22.16% at 10:30 GMT, while Safran gained 1.01% to trade at €67.96. Safran shares have gained 21% over the past 52 weeks, and Zodiac has gained 52% in the same time period. 

"The acquisition of Zodiac Aerospace represents a unique opportunity at this point in Safran's development, just a few months after initiating the refocus of the group on our core activities of aerospace and defense," Safran CEO Philippe Petitcolin said in a statement.

The deal may also serve to draw a line under Zodiac's miserable recent performance linked to problems on its production line that have led to delays, regular profit warnings and sharp criticism from key clients including Airbus (EADSY)  and Boeing (BA - Get Report) . Zodiac shares had slumped almost 40% in the 12 months to April last year when rumors of Safran's interest first emerged.  

Petitcolin, who will take control of the combined group, said that Safran's "industrial expertise will...accelerate the return to their (Zodiac's) historical levels of profitability in the seats and cabins activities."

The bid is Safran second run at Zodiac, after a friendly approach, in July 2010, was rejected by the target's board which claimed that the combination would create little value.
 
Safran said the takeover would boost its earnings per share by more than 10% and that it had identified €200 million in annual cost savings and synergies from the deal, about 50% of which will be realized in the first year after the takeover closes.

The combined group would have made about €2.7 billion in operating income from about €21.2 billion of sales over the past year, making it the world's No.3 aerospace parts supplier behind GE  (GE - Get Report) and Pratt & Whitney, which is owned by United Technologies (UTX - Get Report) .

Zodiac's largest shareholders, including its founding families, the Peugeot family's FFP Investments Inc. and the French state have agreed to back Safran's stock offer but will not sell their stakes into the cash bid.

While the cash element of Safran's offer will provide an evident base for Zodiac's shares, analysts struggled to find much to be positive about in terms of benefits for the bidder.

"Our previous conversations with investors (in Safran) have consistently suggested that there was little support for this transaction, owing to 1) ongoing executions issues at Zodiac; and 2) the ongoing challenge of the LEAP (new engine) ramp up (at Safran)," noted Goldman Sachs on Thursday. "We would therefore expect this announcement to be taken negatively. However, as part of the deal, there is a €5.5 special dividend for Safran shareholders, equal to 8% of the current market cap, which could suppress any downside move."