GE buys Smiths aerospace division for £2.5bn

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Smiths Group, the engineering company, became the latest UK business to sell out to an overseas buyer yesterday by agreeing to dispose of its aerospace division to the giant US conglomerate General Electric for £2.45bn. Most of the cash will be returned to shareholders.

In an associated deal, the two companies will also pool their detection businesses, which make equipment for detecting bombs, guns and chemical, biological and nuclear material, into a joint venture which will be majority-owned and managed by Smiths.

Smiths will return £2.1bn of the proceeds from the aerospace sale to shareholders in the form of an issue of B shares. The announcement sent Smiths' shares 11 per cent higher to 1,049p, making them the biggest climber in the FTSE 100 and valuing the group at £6bn.

The aerospace sale is Smiths' biggest corporate deal since its controversial £1.9bn takeover of rival UK engineer TI Group in 2000. It also means that about three-quarters of the businesses that came together to form that new company have now been disposed of.

Smiths demerged TI's automotive division the following year, and sold its polymer division to Trelleborg of Sweden in 2003 for £495m. Smiths' aerospace business supplies equipment for most of the big civil and military aircraft programmes, including the Airbus A380, Boeing 787, Eurofighter Typhoon and F-35 Joint Strike Fighter. It has a workforce of 11,000, and accounted for 37 per cent of group turnover last year, contributing sales of £1.3bn and £152m in profits.

The price GE is paying is a premium of nearly 50 per cent on market estimates of the value of the aerospace business, which range from £1.7bn to £1.9bn.

Keith Butler-Wheelhouse, the chief executive of Smiths, said the group had elected to sell the business last autumn after deciding it did not have the finances or size to stay in the aerospace industry, where customers such as Airbus and Boeing are increasingly asking suppliers to become risk-sharing partners on new programmes.

Mr Butler-Wheelhouse, who said he had also delayed his retirement from the group for four months to the end of July next year, rejected suggestions that selling off the aerospace business had put Smiths "in play". He said the company was no less or no more vulnerable to a takeover bid now than before.

The disposal will leave Smiths focused on detection systems, medical equipment and John Crane, a manufacturer of seals for the petrochemical industry. Combining the GE and Smiths aerospace operations will create a business with $16bn of sales. A GE spokesman said that most of the Smiths workforce was in the US, and major job losses were not planned.

The new joint venture in detection systems will be 64 per cent owned by Smiths, with GE holding the remaining 36 per cent, and will have its headquarters in the UK. It will be led by Stephen Pilson, currently managing director of Smiths' detection business.

If Smiths is taken over within the next 30 months, GE has the right to buy its stake in the joint venture. After that, if control of Smiths changes, GE has the right to sell its shareholding to the new owner.

Jeff Immelt, GE's president and chief executive, said he did not believe that either of the transactions unveiled yesterday would run into problems with competition authorities in the US or Europe.