PARIS (Reuters) - Zodiac Aerospace's (>> Zodiac Aerospace) board has accepted a 15 percent cut in a takeover offer from aero engine maker Safran (>> SAFRAN) to create the world's third largest aerospace supplier after a string of profit warnings from the aircraft seat maker.

The joint announcement follows weeks in which conflicting movements in share prices weakened Safran's original $9 billion (6.96 billion pounds) offer and keeps alive plans to forge a major new French supplier to planemakers such as Airbus (>> Airbus Group) and Boeing (>> Boeing Co).

Safran cut its offer by $1.3 billion to $7.7 billion to reflect the change in Zodiac's fortunes but said it was confident of resolving its problems after visiting its plants, including a British factory blamed for the latest profit downgrade.

Safran also simplified its proposal to a traditional cash and shares offer, rather than the two-stage process previously agreed that involved a cash bid for at least half the company followed by a merger - a rare hybrid designed to protect tax breaks for core Zodiac shareholders.

The French engine maker said it was now offering 25 euros per Zodiac share in cash, down from 29.47 euros previously, and would give Zodiac shareholders an alternative of preferred shares up to a total of 31.4 percent of the $7.7 billion deal.

Reuters reported last month that Safran, which had also come under pressure from UK hedge fund TCI to ditch the takeover, was working on lowering its bid and switching to a more traditional mixture of cash and shares.

Zodiac shares were suspended earlier at 22.965 euros, having wiped out all the gains they had posted following the January proposal from Safran, when they peaked at 28.7 euros.

Safran shares were halted at 76.11 euros, 13 percent higher than when the planned tie-up was first announced. French blue-chip shares have risen 10.1 percent during the same period,

The revised plan comes weeks after Zodiac Chief Executive Olivier Zarrouati offered his resignation following the latest in a whirlwind series of 10 profit warnings.

Zodiac said its board and core shareholders representing 25 percent of its capital supported the revised plan, even though analysts say some will lose long-standing tax advantages because they are no longer sheltered by the mechanics of a merger.

Even though Zodiac boasts an alternative standalone plan, some of the wealthy families who spurned an offer from Safran seven years ago appeared to have calculated that the risks of staying alone justified taking the less tax-friendly offer.

"Safran's offer is firm. If Zodiac goes its own way, it might achieve the same result but with a lot less certainty," said a person familiar with the negotiations.

A small minority representing less than 5 percent of Zodiac's capital, will hold onto their shares for a while to maintain long-standing tax breaks.

CONFIDENT ON TURNAROUND

Safran Chief Executive Philippe Petitcolin said he was confident of resolving Zodiac's industrial issues, but reassured investors that Safran would not relax its focus on its new LEAP engine, co-designed with General Electric (>> General Electric Company).

Safran was more conservative financially about the deal, however, pledging to reach a targeted return in three to four years instead of three.

The revised offer is subject to Safran shareholder approval - a key demand of TCI, which had waged an intense campaign to block the deal, or at least reshape it.

Although the more traditional bid structure is expected to be broadly welcomed by investors, Safran may still face resistance from some shareholders over the price.

Some analysts estimate the underlying value of Zodiac is 18 euros to 20 euros per share while TCI puts it at below 10.

TCI declined to comment on the revised offer.

Safran said it would use existing authority to buy back 2.3 billion euros of shares over two years after closing the deal. That directly replaces a special dividend of 5.5 euros it would have paid to its shareholders before the now-abandoned merger.

Several shareholders had been urging the company to return cash to shareholders from recent asset sales.

The old structure had been thwarted not just by a drop in Zodiac's shares to levels seen before the original offer, but also by a rise in Safran's own price which threatened to push Zodiac families below a combined stake needed for tax reasons.

Accordingly, Zodiac seriously studied a standalone option with the help of adviser Yann Delabriere, the outgoing president of Faurecia (>> Faurecia), but felt it would take longer to end the crisis than it had previously estimated, one source said.

(Editing by David Clarke)

By Tim Hepher and Sudip Kar-Gupta