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GKN acquires Volvo Aero for £633m

Volvo Aero's operating margin is expected to meet the GKN Aerospace target range of 11 to 13 per cent in 2013.

The British automotive and aerospace components manufacturer GKN has acquired Volvo Aero, a wholly owned subsidiary of the Swedish heavy equipment builder AB Volvo. The deal, worth £633m, is expected to close during the third quarter of 2012.

Based in Sweden, Norway and the US, Volvo Aero designs, engineers and manufactures components and sub-assemblies for aircraft engine turbines. It employs around 3,000 people.

Nigel Stein, chief executive of GKN, said:

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.

The acquisition amount comprises £513m of equity value (consideration), together with an anticipated Volvo Aero pension settlement (£50m) and working-capital refinancing of £70m.

The deal, subject to regulatory approvals, will be funded by new debt and a £140m placing of new ordinary shares, representing approximately 5 per cent of GKN’s current market capitalisation.

For the year ended 31 December 2011, AB Volvo reported audited results attributable to Volvo Aero of £600m in sales and EBITDA of £75m.

In 2012, GKN expects Volvo Aero’s sales to be around £670m with EBITDA anticipated to be approximately £100m.

The Volvo Aero operating margin is expected to meet the GKN Aerospace target range of 11 to 13 per cent in 2013, due to operational process improvements and cost savings, which are expected to total 3 to 4 per cent of Volvo Aero sales by 2014.

Nigel Stein added:

Volvo Aero has invested heavily to secure positions on new engine programmes, offering a long-term platform for growth.  Its strong standing with customers, together with its skilled workforce and high quality engineering team, will be a valuable addition to GKN Aerospace. GKN Aerospace will now be a leader in the aero engine sector, complementing its leading position in composite aero structures.

Olof Persson, CEO of Volvo, said:

GKN is a strong new owner for Volvo Aero. GKN will provide Volvo Aero with the best possible conditions for continued advancement in its industry.

Volvo Aero has attracted considerable interest, but in our opinion, GKN can offer the best conditions for Volvo Aero’s future advancement. This transaction will improve our chances to further refine and develop our core business in commercial vehicles, while providing Volvo Aero with an owner that has both the drive and the capacity to advance and strengthen the company.