Slump in Smiths shares threatens TI merger

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The Independent Online

The £1.9bn takeover of TI Group by the rival engineer Smiths Industries was in danger last night after shareholders gave the deal the thumbs down, wiping more than 12 per cent off Smiths' share price.

The £1.9bn takeover of TI Group by the rival engineer Smiths Industries was in danger last night after shareholders gave the deal the thumbs down, wiping more than 12 per cent off Smiths' share price.

Analysts said the terms of the deal might have to be renegotiated or, alternatively, TI could become the subject of an auction, having effectively put itself up for sale.

Under the terms of the deal, TI shareholders will receive 0.46 of a Smiths share and a 12p special dividend for every TI share, giving them 42 per cent of the enlarged company. In addition, TI shareholders will be eligible for at least £300m in cash from the disposal of the group's automotive business, which was put up for sale last week. TI estimates that the disposal of the business will be worth between 20p and 65p a share.

At last night's closing prices, the deal values TI at 350p compared with a market price of 375p and a 12-month high of 478p. If the sale of the automotive business, which is thought to be worth £1.2bn to £1.5bn, raises another 20p for TI shareholders, then the offer will still be worth less than TI's current share price.

Keith Butler-Wheelhouse, chief executive of Smiths, rejected suggestions that the takeover was in danger of collapsing after the company's share price plunged 100p to close at 735p. "I don't think we need to rescue the deal yet." But he conceded that the two companies had a lot to do to persuade investors of its merits. "We have a tremendous story to tell our institutions and private investors but it is very difficult to explain all the industrial logic of a deal like this in the space of a press release or an analysts' conference."

The takeover would create a grouping with £3bn of sales, £500m of debt, 56,000 employees and a "first tier" aerospace component business with a major presence on both Airbus and Boeing aircraft and military programmes.

Mr Butler-Wheelhouse would become chief executive of the enlarged company, to be known as SI Group, while the TI chairman, Sir Christopher Lewinton, would become non-executive chairman of a 15-strong board.

Smiths said there would be £25m of cost savings and job cuts would be limited to "tens, not hundreds" as a result of the consolidation of three head offices into one.

Aerospace would account for the 40 per cent of the enlarged group's turnover. The remainder of the business would consist of Smiths' existing medical equipment division, its industrial business, which includes brands such as Vent-Axia, and TI's £1bn turnover sealings business.

Mr Butler-Wheelhouse said the deal would double the size of Smiths' aerospace business, enabling it to compete better in a world where its customer base was consolidating rapidly. Smiths would also gain increased access to the Airbus programme and the business and regional jet market through TI's Dowty division.

But analysts said that the market would see it as a deal for size's stake, which would do nothing to help Smiths.

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