GKN forced the rival bidders to pull back for Volvo Aero

by

Jeni T

There is soon going to be shocking news around for the British s manufacturing industry as the British engineering group GKN has decided to buy Sweden s largest aerospace company Volvo worth up to 800m. According to the reliable sources, the deal is not imminent as the other bidders like Germany s MTU Aero Engines, Carlyle Group and Nordic Capital have supposedly pulled themselves back from the list of front-runners who planned to buy Volvo s aero engine business. After the acquisition of Volvo Aero, GKN would be considered the second largest, by revenue, of GKN\’s four divisions. Since Volvo Aero manufactures entire engines as well as parts for aircraft including Saab\’s Gripen fighter jet, it would be a major expansion of GKN\’s aerospace business. Speculations are also being made about GKN that to raise enough cash to buy Volvo, it is planning to sell out its non-core business of wheels which manufactures parts for construction and other heavy vehicles.

Recently, in the month of January when GKN failed to make a lucrative contract to do work on the wings of the Airbus A320 jet after losing the deal to its Korean rival who made a cheaper offer. GKN which manufactures lightweight parts for Airbus and Boeing jets on the Isle of Wight as well as Bristol is already in joint venture with Rolls-Royce for making lightweight turbine blades for the aircraft engines. However, it was confirmed by Chief executive of GKN, Nigel Stein, that the company was looking for profitable acquisitions, especially in aerospace and land systems, as far as the buyout is concerned they would remain disciplined.

GKN s chief executive, Nigel Stein, called the year 2011 as the year of transition for the aerospace industry. He explained that the boost in the civil aviation market has lessened the military orders. Earlier, the sales mix was 58% civil and 42% military which is now expected by GKN to move towards 70% civil and 30% military. With this deal, GKN now wants to move forward and sell its aero engine division which supplies parts for civil and military aircraft. Stein confirmed that they are more focused on heavy trucks and construction equipment. However, analysts Andy Chambers and Alexandra West at Red burn cautiously stated on this mooted deal that it would be a significant undertaking carrying an element of execution risk. Sandy Morris at Jefferies warned Volvo Aero that the acquisition might stretch GKN financially and a rights issue might be sincerely required. Need cash apply with

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Although, Volvo Aero and GKN have lots in common in the engine components market, they are working on the development of composite materials for engines. And, since both are already major suppliers to GE, Pratt & Whitney and Rolls-Royce, they are together going to have a much stronger portfolio in the market. Morris further added that they would analyze the equity placing and increasing debt against the uncertain Euro zone; and also cleared that the deal was little compelling.

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