GKN silent on reported $5bn bid for Spirit AeroSystems

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GKN has declined to comment on a British newspaper report that it is lining up a $5 billion cash and shares bid for Spirit AeroSystems.

According to The Daily Mail, equity dealers are speculating intensely that the UK-based tier-one aerostructures and engine components supplier will move for Spirit. Shares in the Wichita-based aerostructures maker Spirit have finally returned, on New York trading, to about the $24 level from which they plunged - to the mid-teens - in late October after the company spelled out $590 million in charges it was to take as it struggled to meet development and production schedule demands for several key programmes.

The third-quarter 2012 charges - $184 million on the Boeing 787, $163 million on the Gulfstream G650 wing, $151 million on the BR725 nacelle for the G650, $88 million on the Gulfstream G280 wing and $4 million on other programmes - were followed in the first quarter of 2013 by another $15 million against the 787.

Spirit - which has since launched a "comprehensive review" of its work on Airbus, Boeing, Gulfstream and Sikorsky projects - is bigger than GKN Aerospace, with 2012 sales of $5.4 billion, against its alleged suitor's $2.8 billion. The entire GKN group turned over £6.9 billion ($10.6 billion) last year.

GKN Aerospace has been growing rapidly in recent years, including by acquisition. Its chief executive Marcus Bryson has described its £633 million purchase in 2012 of engine components maker Volvo Aero as a "transformative" move that will take revenue to $3.5 billion this year.

Andrew Porteous, an equities analyst at Agency Partners in London, says "we struggle to see the logic" of a bid for Spirit, as GKN is only beginning to integrate Volvo Aero. But he adds in a research note anticipating GKN's half-year results announcement scheduled for 30 July: "Any logic for a deal would centre on GKN's operational excellence, an ability to realise synergies between Spirit and GKN Aerostructures and the scope to improve Spirit's margins towards the industry average (currently 8-9% versus GKN on 11-12% and Triumph on circa 15%)."

There would be more logic, Porteous reckons, "in GKN waiting to pick up further business as the major airframers look to dispose of in-house operations rather than paying up for a standalone business".

Porteous adds that GKN has "a strong track record of this", citing in its 2001 acquisition of Boeing's St Louis defence components plant and the Filton wing-components factory it took over from Airbus in 2009.