LONDON (Dow Jones) - European smart-card makers Axalto N.V. and Gemplus International S.A. on Wednesday said they'd swap shares to create a firm better placed to seek out opportunities in markets including identity, healthcare, IT and payments.

Axalto and Gemplus (GEMP) will form Gemalto, a firm with 2005 revenue of 1.8 billion euros and 11,000 employees.

Axalto shares climbed nearly 10% to 25.10 euros a share, while Gemplus fell 2.6% after trading resumed in Paris . Shares in both companies were suspended in the morning.

Axalto, a spinoff from oil-services company Schlumberger, (SLB) will offer two of its shares for 25 Gemplus shares. Gemplus will make a 0.26 euro-a-share payment before the deal concludes, which will give Gemplus shareholders 55.4% of the combined firm.

Shareholders representing 43.7% of Gemplus, including private-equity group Texas Pacific, back the deal.

The companies see 85 million euros of synergies by the third year after the close, at a one-time cost of 43 million euros .

Gemplus CEO Alex Mandl, who will become executive chairman, said on a conference call that job cuts wouldn't be driving the synergy benefits. Instead, reduced overhead and operational costs will lead to savings.

Upon the deal's close, they'll recommend buying back up to 10% of Gemalto shares.

"On a high-volume and increasingly commoditized market, this surprising move is logical," said Bertrand Laport, an analyst at Fortis Bank. He noted, however, that the merger may face competition hurdles in the U.S. and Europe, where it would be a dominant player.

Mandl addressed those concerns on the conference call.

"No one is suggesting that antitrust (approval) is a slam dunk," he said. "But we are fully convinced that regulators will appreciate that having a fairly good joint market share doesn't impair the competitive aspects of this business."

Mandl added the customer overlap is "limited."

Axalto CEO Olivier Piou will become CEO of the combined firm.

Piou told Dow Jones last summer that identity detection was a key source of future growth.

"Biometrics is definitely a strong area of growth for us," he said.

Deutsche Bank advised Axalto, while Morgan Stanley advised Gemplus.

(END) Dow Jones Newswires

12-07-05 0700ET Copyright (c) 2005 Dow Jones & Company, Inc. Copyright (C) 2005 Dow Jones & Company, Inc. All Rights Reserved.