Fighting talk as GKN goes on pounds 1bn spending spree

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GKN, the automotive, defence and industrial services group, yesterday said it had pounds 1bn to spend on acquisitions and confirmed that it has held exploratory talks about merging its Westland helicopters business with Agusta of Italy.

The group also said it expected to hear by the end of the month whether it had been selected for a pounds 4bn contract to build a new generation of "battlefield taxis" for the British and German armies and other European defence forces.

An Anglo-German consortium led by GKN is favourite to win the contract in preference to Team International, a rival consortium including Vickers and Alvis of the UK and German and French partners.

CK Chow, GKN's chief executive, said the discussions about a helicopter merger with Agusta, Westland's partner on the EH101 programme had been "preliminary". But he added: "We work well together and it would not be illogical to look at a joint relationship with Agusta in the future."

A combination of Westland and Agusta would create a helicopter group with sales of about pounds 1bn, of which the UK company would contribute about two-thirds.

Mr Chow indicated that GKN would concentrate on building up its three main divisions through organic growth or bolt-on acquisitions, saying it could finance pounds 1bn-worth of takeover deals without having to raise further equity capital. The three main areas in which it is looking for acquisitions are powder metallurgy, off-highway vehicles products and aerospace structures. Last year GKN acquired eight businesses at a cost of pounds 462m, including Sinter Metals of the US.

The order for battlefield taxis -or Multi-Role Armoured Vehicles as they are known - would be worth pounds 2bn to GKN, which has a 50 per cent stake in the consortium. The British, German and other European armies have a requirement for 7,000 vehicles with deliveries starting in 2004. The export potential could be the same again.

The winning consortium could form the basis for a restructuring of Europe's military vehicles industry. Mr Chow said Europe had 20 manufacturers compared with just two in the US and rationalisation would be needed to improve its competitiveness.

He was speaking as GKN unveiled a 12 per cent increase in pre-tax profits before exceptionals to pounds 406m. Although the results were at the top end of expectations and were accompanied by a bullish outlook, GKN shares slipped 17p to 1493 as dealers sold off "export" stocks in response to the strengthening pound.