Jobs axed in pounds 78m Alvis and GKN defence merger

UP TO 200 workers were set to lose their jobs after the combat vehicles maker, Alvis, revealed yesterday that it would close its factory in Coventry following the pounds 78m acquisition of the armoured vehicles unit of GKN, the defence and industrial group.

News of the Alvis redundancies came as Vickers, the defence and engineering group, was preparing to announce up to 600 job losses in its tank division with tomorrow's results. The unit employs around 1,400 people in two factories in Newcastle and Leeds and has been hit by a fall in orders.

UK manufacturing was dealt a further blow when Delta, the electronics group, said yesterday that the strength of the pound and the Asian economic crisis would cause 230 redundancies in its Birmingham and Manchester operations.

Alvis said that the enlarged group, which will be one of Europe's leading armoured vehicles makers with combined sales of over pounds 160m, would operate from one plant in Telford currently owned by GKN. The factory, which employs 500 people, will be boosted by an extra 50 recruits.

The reorganisation will cost up to pounds 9m in 1998 and 1999, which will be paid for through the sale of the Coventry site. The overhaul is expected to produce cost savings of pounds 5m from 2000. Under the terms of yesterday's deal, GKN will inject its armoured vehicles division, maker of the Warrior and Piranha carriers, into Alvis in exchange for a 29.9 per cent stake in the company worth about pounds 63m.

GKN will become the largest shareholder in Alvis and gain a seat on the board but is forbidden from buying and selling shares in the company for the next 18 months. Alvis will also assume around pounds 15m of GKN Defence's liabilities, bringing the total consideration to pounds 78m.

The tie-up leaves Vickers as the only major UK maker of combat vehicles without a strategic partner. Talks between Vickers and GKN Defence broke down last year over price. Analysts yesterday speculated that the defence group could use its pounds 200m cash pile to mount a counter-bid for Alvis. Vickers said it was observing the situation "with interest".

The acquisition of GKN Defence brings Alvis into the pounds 3bn programme to build the Multi-Role Armoured Vehicle (MRAV) - the so-called "battlefield taxi" - whose shape can be changed to suit different defence needs. GKN won the project last year in partnership with German and French companies.

GKN Defence, which last year had sales of pounds 160.3m and profits of pounds 21m, is also in the running for the Anglo-US pounds 1bn Tracer project. Yesterday's deal will see Alvis abandoning a rival consortium to join GKN's group.

The strength of Alvis's short-term order books would also help GKN to bridge a gap in its orders, which were set to decline between now and 2003 when MRAV production is expected to start. Alvis, best known for its Scorpion and Stormer tracked vehicles, has forward orders of pounds 385m.

Executives of both sides hailed the deal as a key step towards consolidation in the European fighting vehicles industry, where more than 20 companies fight for a share of a shrinking market. Nick Prest, the Alvis chairman, said the deal was only "a step" on the road to consolidation and predicted further tie-ups between European manufacturers.

He said the most likely link would be between the enlarged Alvis, Germany's Krauss Maffei, Wegmann and MaK, and France's state-owned contractor GIAT. Shares in GKN fell 19p to 672p. Alvis fell 2.5p to 195p.

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