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
Arts and Entertainment
The Bach Choir has been crowned the inaugural winner of Sky Arts’ show The Great Culture Quiz
arts + ents140-year-old choir declared winner of Sky Arts' 'The Great Culture Quiz'
Life and Style
food + drink
News
i100
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
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

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas