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SMITHS SELLS AEROSPACE DIVISION TO GE FOR $4.8BN

15 Jan 07. Smiths Group plc announces that it has agreed to sell Smiths Aerospace division to General Electric Company (GE) for a total cash consideration of US$4.8bn. Following the Sale, the board of directors of Smiths proposes to return £2.1bn to shareholders.

Aerospace comprises two principal business units “Aerospace Systems and Aerospace Components. Aerospace Systems designs, manufactures and provides in-service support for digital, electrical power and mechanical systems for both the military and commercial markets. Aerospace Components supplies high-value components to the principal aircraft engine manufacturers. In addition, Times Microwave Systems Inc. (TMS), reported within Specialty Engineering, is included as part of the Sale. TMS products include components for military and commercial aerospace, shipboard and wireless applications.

Aerospace, headquartered in London, has approximately 11,500 employees and operates manufacturing facilities in five countries. Aerospace has developed organically and through the acquisition of Lear Siegler in 1987 and the merger with TI Group in 2001.

Smiths has invested significantly over the past five years to position Aerospace as a Tier 1 systems supplier and integrator. Aerospace Systems products and services include: common core computing systems, data monitoring and recording systems, flight management systems, mission and stores management systems, navigation products, cockpit displays, fuel systems, power distribution and management, generators, power conversion, landing gear systems, high lift systems, military mission systems, general actuation, structures and propellers. Aerospace Components supplies rings, combustors, injectors, shafts, outer casings, liners, mixers and other components for jet engines using specialised manufacturing technologies including flash welding, cold rolling, chemical milling, broaching and other complex processes.

For the 53 week period ended 5 August 2006, Aerospace recorded operating profits of £156m on a turnover of £1.3bn. Total Aerospace net assets before inter-company funding and gross assets were £808m and £1,254m respectively as at 5 August 2006.

Highlights:

• The disposal price for Aerospace of US$4.8bn recognises the high quality of the business together with Smiths substantial investment in aerospace technology over the past several years.
• The Sale accelerates the delivery of returns to shareholders.
• Smiths continuing businesses serve strong and growing markets. The Board believes that the continuing Smiths Group has enhanced financial characteristics and is well positioned to generate substantial returns. A separate announcement is being made today in relation to the further development of Smiths Detection.
• Following completion of the Sale, Smiths is expected to generate improved returns on capital and enhanced margins. The net effect of the Sale and the intended return of capital to shareholders would have been accretive to Smiths headline earnings per share for pro forma 2006.
• The Board has assessed the capital structure of the Company. Following the intended return of capital to shareholders, Smiths is expected to have debt ratings of Baa2 and BBB+. The Board is satisfied that the Company has flexibility to execute its strategy whilst maintaining a solid investment grade rating. The Board also believes that the enhanced financial characteristics of the Company will enable a progressive dividend policy, targeting dividend cover of 1.8 times.
• The Board proposes, subject to completion of the Sale and shareholder approval, to return £2.1bn – out of the net proceeds estimated to be £2.25bn – by means of a B share scheme, combined with a share consolidation, shortly after the completion of the Sale.
• The Sale is conditional, amongst other things, upon obtaining merger and anti-trust clearances, including in the United States and from the European Commission, and the

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