The bosses of French firms SNECMA and SAGEM look happy enough, shaking on their surprise merger announced today that creates Europe’s fourth biggest defence group, but the markets have reacted with caution to the news.Only five days ago SAGEM boss Grégoire Olivier said he was not looking to tie up with anyone. Today he claimed electronics would be increasingly important in planes and helicopters over the coming years, and his company’s 4000 electronic engineers have a mission to grab market share. Merging with the engine maker SNECMA would allow them to become a powerful world and aeronautical electronics company. The french state, SNECMA’s majority shareholder will retain a 35 percent shareof the new group which has yet to be named, and based on 2003 turnover it willrank fourth in europe just behind another French group Thales. Some analysts are muttering the merger is a political stitch-up, as it raises cash for the French government, and may protect the pair from possible foreign takeover. Moreover, it makes little bottom-line sense, as synergies and savings from combining ill-fitting businesses may be slight.