GKN deal rules out bid for Vickers

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The Independent Online
GKN, the automotive, industrial services and defence group, yesterday unveiled an agreed pounds 352m takeover of a US supplier of metal parts for the car, home appliance and power tool industries.

The deal is the first big acquisition since CK Chow took over as chief executive from Sir David Lees last year and would appear to dash hopes of GKN making a bid for rival engineering group Vickers.

GKN is paying $570m in cash for Sinter Metals, which is based in Cleveland, Ohio, made up of $386m for the equity and $184m for the assumption of debt. The deal will turn GKN into the world's largest supplier of precision pressed powder metal parts with annual sales of pounds 327m.

The acquisition will be funded from GKN's own resources and Mr Chow said he expected it to be earnings-enhancing in the first year.

Sinter Metals is the world's largest independent manufacturer of powder metal parts with 18 production sites in North America and Europe employing more than 3,000 people.

The total market for these kind of parts is put at pounds 2.8bn a year and growing. They are increasingly being substituted for forged steel, cast iron and other metalworked parts because they are cheaper to produce, lighter, stronger and easier to press into complex shapes.

Demand is growing at a rate of 11 per cent a year in the US and 6 per cent in Europe. About 70 per cent of Sinter's output goes into the automotive sector. The rest goes into the white goods, power tool and lawn and garden products industry. The US company will be combined with GKN's own powder metallurgy interests in the UK and Italy, enabling it to achieve a global presence.

GKN said it had received acceptances from shareholders representing some 43 per cent of Sinter's stock. The offer is expected to close late this month.

News of the deal lifted GKN shares 38p to a close of 949p but Vickers dropped 3p to 212p as analysts concluded that GKN had probably used up too much of its firepower buying Sinter.

GKN had pounds 528m in cash reserves at the end of last year but faces a $600m settlement in the US after a court ruled in favour of franchisees of GKN exhaust systems which alleged misuse of advertising levies by GKN.

GKN has made a pounds 270m provision in its 1996 accounts to cover the potential cost of the claim and an appeal is under way.

Although analysts generally welcomed the deal there was some caution about it increasing its exposure to a highly cyclical sector such as the car industry when sales were stagnant in mature markets such as the US and Europe, leaving margins under pressure.

"One would have thought GKN may have wanted to diversify its businesses a little and become less cyclical," said one analyst.

Other than car parts, its main businesses are the helicopter maker Westland, the Chep pallet division and industrial services.

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