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Global engineering firm GKN plc (LSE:GKN) sealed the deal to acquire the aerospace division of Volvo AB for £633 million, in the company’s bid to become the market leader in the aero engine markets.
The acquisition, rumours of which leaked last March 2012, will support the growth strategy of GKN’s aerospace division, which would account for one-third of the group’s sales following the transaction.
“GKN Aerospace will now be a leader in the aero engine sector, complementing its leading position in composite aero structures,” said GKN Chief Executive Nigel Stein.
Volvo Aero, which designs and manufactures components and sub-assemblies for aircraft engine turbines, is a supplier for all major engine manufacturers with sales of £600 million for year ended 31st December 2011.
“The combination of GKN Aerospace and Volvo Aero creates a world leader in both aero structures and aero engine components,” GKN said.
Value Enhancing
The transaction, according to GKN, will be enhancing the company’s earnings per share and will increase the pro forma sales to £2 billion.
“Volvo Aero has strong life-of-programme positions on existing platforms and a pipeline of new technology, offering a long-term revenue stream and opportunities for growth.”
The UK-based company engineering firm had been pursuing Volvo Aero for three years, as the group expands its aerospace business.
Competitor MTU Aero Engines, as well as firms Carlyle Group and Nordic Capital, were also reported to have offered to acquire Volvo.
Winning the bid, GKN placed about 5% of the total issued shares today to raise £140 million to fund the acquisition.
GKN is buying £513 million worth of equity, £50 million in anticipated pension settlement of Volvo, and £70 million in working capital financing.
The deal is expected to be completed in the third quarter of 2012, pending regulatory approvals.
CEO Comments
Nick Stein, Chief Executive of GKN, commenting on the acquisition stated:
“This is a highly attractive acquisition for GKN creating a market leader in aero engine components. With excellent technology and strong life-of-programme positions on most civil aero engines, Volvo Aero will significantly enhance GKN Aerospace’s engine components business.”
Company Spotlight
Established more than 100 years ago, GKN Aerospace, part of GKN plc, is one of the world’s largest independent suppliers to the aviation industry, designing and manufacturing integrated metallic and composite assemblies for aerostructures and engine products.
The deal announced today was welcomed by investors with shares of GKN, trading on the London Stock Exchange since 1946, jumping 14% to £2.12 per share, at 11:00 GMT.
