GKN makes pounds 496m bid for Westland: Britain's only helicopter maker faces loss of independence from engineering group's hostile approach

BRITAIN'S only helicopter manufacturer, Westland, is set to lose its independence after the launch yesterday of a hostile pounds 496m takeover bid by GKN, the car components and engineering group and maker of the Warrior armoured vehicle.

The bid, widely viewed in the City as a sighting shot, was promptly rejected as 'unwelcome' by Westland.

GKN, which already held 28.3 per cent of Westland, said yesterday it had agreed to raise its stake to 47 per cent by paying pounds 75m for the 18.7 per cent shareholding in Westland held by United Technologies Corporation of the US, owner of the Sikorsky helicopter business.

The bid, at 290p a share, values the shares in Westland not already held by GKN at pounds 366m and is being financed partly by a pounds 248m rights issue to GKN shareholders.

If successful, the combined group will have a workforce of 35,000 and a turnover of pounds 3bn, 20 per cent of which is generated by defence and aerospace sales.

GKN had been considering a bid since last July and decided to move when it became known last November that UTC wanted to offload its shareholding.

Executives at GKN denied that the timing of the bid had anything to do with fears that British Aerospace might be ready to launch an offer following last week's pounds 800m sale of Rover to BMW. BAe is still seen as a possible counter-bidder in some quarters, along with Lord Weinstock's GEC.

Westland's board, led by the chairman, Sir Leslie Fletcher, and the chief executive, Alan Jones, is expected to meet today to consider the position. Yesterday it advised shareholders not to take any action.

The prize for GKN is Westland's share in the EH101 helicopter programme in partnership with Agusta of Italy, and its booming spares business.

Westland has an order for 50 EH101s from the British Navy worth pounds 700m while the worldwide market for all variants of the aircraft is put at 750, worth pounds 15bn.

Sir David Lees, GKN's chairman, said the merger would create a single grouping capable of responding to the requirements of highly mobile rapid-response forces engaged in local conflicts. Executives cited Somalia and Bosnia as examples.

However, acquiring Westland will also relieve some of GKN's tax burden since it does not currently earn enough UK profits to set against advance corporation tax.

If the takeover goes through, GKN's UK sales as a proportion of the group total will increase from 30 to 40 per cent, while the UK will account for 30 per cent of manufacturing production against less than a quarter at present.

GKN has produced more than 700 Warriors for the British Army and last year won an order, estimated to be worth pounds 500m, to supply Desert Warriors to Kuwait. Last year it produced 146 of its other vehicles, the Saxon, Simba and Piranha, for the Ministry of Defence and the Middle and Far East.

The bid was not unexpected since the possibility of a full offer from GKN has been the subject of speculation almost from the moment it bought a minority stake in Westland in 1988.

However, analysts were agreed that the offer, as it stands, was unlikely to deliver GKN control of Westland.

'This looks like a sighting shot to me. The shareholders we have spoken to aren't likely to accept,' one broker said, reflecting a widely held view.

Shares in both companies ended the day 2p higher, GKN's at 582p and Westland's at 307p - 17p above the offer price.

As an incentive to shareholders to accept its bid, GKN is offering them a slice of any damages Westland obtains from litigation with the Arab Organisation for Industrialisation over the collapse of a Lynx helicopter deal in the late 1970s. Last July, an international arbitration panel awarded Westland pounds 385m in damages, although no money has yet been paid.

GKN's profits in 1993 fell by pounds 25m to approximately pounds 97m after a pounds 20m charge for redundancies and restructuring.

(Photograph omitted)

View from City Road, page 28