Lucas and Varity in world top 10 as pounds 3bn deal is sealed

Lucas and the US group Varity yesterday clinched a pounds 3.2bn merger to create one of the world's top 10 automotive component suppliers and the second biggest manufacturer of brakes.

The merged company, LucasVarity, will have sales of pounds 4.4bn and 55,000 employees and will have headquarters in the UK. Under the terms of the all-paper deal, Lucas shareholders will emerge with 62 per cent of the shares in the enlarged group, which will be listed on the London Stock Exchange and rank number 64 among Britain's 100 biggest companies, qualifying it for entry to the FT-SE 100 index.

In order to make a rival bid for Lucas less attractive, there is a "poison pill" clause in the agreement whereby either side must pay the other a "break-up fee" of $25m if they pull out of the merger. Varity insisted this was common practice in US merger agreements.

The chief executive of LucasVarity will be Victor Rice, chairman and chief executive of Varity, and the bulk of the capacity and job reductions following the merger are likely to be in the UK. A total of pounds 50m is being set aside for restructuring charges.

Sir Brian Pearse, who will move from the chairmanship of Lucas to non- executive chairman of LucasVarity, conceded there would be job losses but he said these would run to only a "few hundred" out of a combined workforce of 55,000.

Half of Lucas's 45,000-strong workforce is based in the UK at factories in the Midlands, Wales and the West Country.

The merger will produce annual savings of pounds 65m by next year and LucasVarity estimates it will cut its tax bill by a further pounds 65m in the first three years through the use of Lucas's tax losses in the US and setting Varity's UK profits against Lucas's unrelieved advance corporation tax.

But Mr Rice conceded that the biggest challenge would be to merge the two cultures of Lucas and Varity. "I have seen many mergers fail because nobody set about addressing the cultural issue," he said. "There can only be one culture and it has to be established very quickly. I am the chief executive and in the end it will be my culture."

Varity is the world's biggest manufacturer of ABS or anti-lock brakes. It also owns the world's leading diesel engine manufacturer, Perkins, and has a dominant position in the US with General Motors, Ford and Chrysler its biggest customers. Lucas's main presence is in Europe where it is the leading supplier of foundation brakes and diesel fuel injection systems and counts Volkswagen, BMWRover and Japanese transplant car factories among its biggest customers.

Lucas will also put its aerospace division, which has sales of pounds 600m, into the merged company after deciding not to sell the business separately.

In addition to cost and tax savings, the two companies said LucasVarity would benefit from pooled research and development, their complementary strengths in product range and geographic coverage plus the increasing demand from car manufacturers for single, integrated component suppliers.

As a first step, Varity's diesel engine business, Perkins, will increase its purchase of Lucas diesel injection systems.

It is expected to take until September to complete the merger because of the various regulatory approvals required in the UK and US.

John Allen of the engineering union AEEU said: "This can only be good news for jobs. We are going to have a major company, genuinely a world- wide player, UK-based and with all the decisions made in the UK."

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

As in 1942, Germany must show restraint over Greece

As in 1942, Germany must show restraint over Greece

Mussolini tried to warn his ally of the danger of bringing the country to its knees. So should we, says Patrick Cockburn
Britain's widening poverty gap should be causing outrage at the start of the election campaign

The short stroll that should be our walk of shame

Courting the global elite has failed to benefit Britain, as the vast disparity in wealth on display in the capital shows
Homeless Veterans appeal: The rise of the working poor: when having a job cannot prevent poverty

Homeless Veterans appeal

The rise of the working poor: when having a job cannot prevent poverty
Prince Charles the saviour of the nation? A new book highlights concerns about how political he will be when he eventually becomes king

Prince Charles the saviour of the nation?

A new book highlights concerns about how political he will be when he eventually becomes king
How books can defeat Isis: Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad

How books can defeat Isis

Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad
Judith Hackitt: The myths of elf 'n' safety

Judith Hackitt: The myths of elf 'n' safety

She may be in charge of minimising our risks of injury, but the chair of the Health and Safety Executive still wants children to be able to hurt themselves
The open loathing between Barack Obama and Benjamin Netanyahu just got worse

The open loathing between Obama and Netanyahu just got worse

The Israeli PM's relationship with the Obama has always been chilly, but going over the President's head on Iran will do him no favours, says Rupert Cornwell
French chefs get 'le huff' as nation slips down global cuisine rankings

French chefs get 'le huff' as nation slips down global cuisine rankings

Fury at British best restaurants survey sees French magazine produce a rival list
Star choreographer Matthew Bourne gives young carers a chance to perform at Sadler's Wells

Young carers to make dance debut

What happened when superstar choreographer Matthew Bourne encouraged 27 teenage carers to think about themselves for once?
Design Council's 70th anniversary: Four of the most intriguing prototypes from Ones to Watch

Design Council's 70th anniversary

Four of the most intriguing prototypes from Ones to Watch
Dame Harriet Walter: The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment

Dame Harriet Walter interview

The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment
Art should not be a slave to the ideas driving it

Art should not be a slave to the ideas driving it

Critics of Tom Stoppard's new play seem to agree that cerebral can never trump character, says DJ Taylor
Bill Granger recipes: Our chef's winter salads will make you feel energised through February

Bill Granger's winter salads

Salads aren't just a bit on the side, says our chef - their crunch, colour and natural goodness are perfect for a midwinter pick-me-up
England vs Wales: Cool head George Ford ready to put out dragon fire

George Ford: Cool head ready to put out dragon fire

No 10’s calmness under pressure will be key for England in Cardiff
Michael Calvin: Time for Old Firm to put aside bigotry and forge new links

Michael Calvin's Last Word

Time for Old Firm to put aside bigotry and forge new links