GKN TO SELL AgustaWestland STAKE – NO DEAL WITH BOEING

20 May 04. GKN (London:GKN.L – News) said on Thursday it was in talks to pull out of helicopter maker AgustaWestland by selling its half stake to Italian partner Finmeccanica (Milan:SIFI.MI – News).

GKN’s stake in the world’s second largest helicopter maker by revenues has been estimated at £800-900m($1.41-$1.59bn) by analysts, some of whom say Finmeccanica could pay more as the deal would give it total control.

“It is now timely to advise shareholders that negotiations are in progress concerning the possible sale of GKN’s 50 percent shareholding in
AgustaWestland to Finmeccanica,” Chairman David Lees said in a statement for GKN’s annual general meeting.

“A further announcement will be made when appropriate,” he said.A deal should be sealed by the end of June, a source close to the operation told Reuters.

A Finmeccanica spokesman declined to elaborate on the possible sale, which was mooted in a Goldman Sachs research report more than a week earlier. Comments by Lees, including an outlook for a year-on-year fall in half-year underlying profit, hit GKN shares, which fell more than six percent. Lees said group pre-tax profit before goodwill and exceptional items in the first half of 2004 was likely to be “somewhat below” that of last year. The shares were off 2.17 percent at 214 1/2 pence as of 1054 GMT, while the FTSE 100 index (London:^FTSE

A Finmeccanica spokesman declined to elaborate on the possible AgustaWestland stake purchase, which was mooted in a Goldman Sachs research report more than a week earlier. Finmeccanica is expected to have access to funds for such a deal after saying last month it would sell part of its stake in semiconductor maker STMicroelectronics (Milan:STM.MI – News; Paris:STM.PA – News) worth more than €3bn. GKN’s Lees made no comment on how GKN might use the proceeds from a sale.

Later GKN announced that the company had walked away from talks to buy U.S. manufacturing plants from Boeing Co (NYSE:BA – News) seen by analysts to be worth up to $3bn, a source close to the negotiations told Reuters on Thursday.

The UK engineering firm bought a U.S. plant from Boeing in 2001 but a mooted purchase of Boeing’s facilities in Wichita, Kansas, proved too large, the source said.

“They (GKN) have declined to submit a proposal,” he told Reuters. “Size was an issue,” he added, noting Boeing was interested in selling the Wichita plant together with two in Oklahoma. A GKN spokesman declined to comment. (Source: Reuters)

Comment: At last the sale of the AgustaWestland stake becomes public after much speculation. Originally conceived with GKN Defence as the ‘third (defence) leg’ of its business to complement automotive and CHEP pallets (since sold to Brambles), GKN is now concentrating its efforts on its wholly-owned new aerospace division and automotive engineering and exiting defence after a period stretching nearly 100 years. The company was never happy with a 50% stake and Westland is more likely to thrive under Finmeccanica in the longer term, how this affects the UK plants will become clear in due course, but, given the record of the present government, little move will be made to preserve this important source of IP and R&D.