View from City Road: GKN's whirly-bird pursues the worm

GKN's dawn attack on Westland is unlikely to bring victory at the sighting shot of 290p. Despite, in effect, a 47 per cent shareholding, including an irrevocable acceptance from United Technologies for its 18.7 per cent stake, GKN will surely have to pay more.

It is hard to fault GKN's timing. Westland, with a pounds 1.4bn order book, is about to enter a period of rising production and profits as its EH101 helicopter rolls out of the hangar in 18 months' time. The independent Westland directors look poised to come out fighting for a better price. GKN has sought for years to soften the impact of the automotive industry cycle and the baleful workings of the UK advance corporation tax system on its earnings. Waste management, vending machines and scaffolding have all let it down, proving more cyclical even than auto parts.

Only Chep pallets has prospered and GKN has built up pounds 132.6m of unrelieved ACT.

Defence, operating out of UK factories, is now slated to fill that stabilising role. The plausible theory is that altered defence priorities imply increased demand for 'platforms' that combine rapid deployment vehicles with protective helicopter cover. The pounds 3bn merger of Westland with GKN's defence vehicle activities should provide a rising stream of earnings from 1995 onwards.

A price-earnings multiple of 25 looks generous for Westland. But some analysts are talking of trebled profits in a few years, and GKN will also reap great ACT benefits. A 2p rise in GKN shares to 572p and a 2p rise in Westland to 307p supports the view that 290p is too cheap.