The entities are GIAT Industries, part of the Nexter Group, which manufactures munitions and armaments for the French military, and SNPE, which manufactures powders and explosives for military and civilian use.
"This operation should make it possible to bring together, within a same entity and while respecting their respective strategies, customers and markets, the complementary activities of the two groups in the munitions field ...," Nexter said in an announcement of the possible merger.
"It (the merger) should take place in 2013 in the form of a bringing together of the two groups around GIAT Industries."
Nexter said the talks on merger have the support of the French government but offered no details.
GIAT Industries generated revenues of nearly $488 million in 2012. SNPE, through its subsidiary Eurenco, not only produces powders and explosives but also nitrate ethylhexyl, a performance-enhancing additive to diesel fuel.