U.K. company Smiths Group announced Monday that it is to sell Smiths Aerospace division to General Electric for $4.8 billion in cash and plans to return $2.1 billion to its shareholders.
The deal would signal a return for GE, CNBC's parent company, to European expansion and could be the start of a wider trend of U.S. companies to look to cross-border consolidation, following a period of heavy consolidation within the U.S., The Wall Street Journal reported.
Smiths Group has tried to avoid being broken up for some time, but decided to sell Smiths Aerospace, who is a secondary supplier of aircraft components, including landing-gear parts and propellers, as a strategic change to its core business.
Smiths also said it and General Electric signed a letter of intent to form a joint venture called Smiths GE Detection. Smiths will own 64% and GE will own 36% of the new division.
The proposed joint venture will combine Smiths Detection with GE Homeland Protection to create a global business that takes advantage of the detection and homeland protection markets, which are growth industries, the Journal reported.
GE Boosts Aerospace
Fairfield, Connecticut-based GE said the purchases would broaden its aerospace portfolio by adding Smiths' flight management systems, electrical power management, mechanical actuation systems and airborne platform computing systems.
"GE Aviation is growing about 10 percent a year and this acquisition gives us a technology growth platform that will be accretive to our net income and will deliver immediate and future value for our investors," GE Chairman and Chief Executive Jeff Immelt said in the statement.
Smiths Aerospace has more than 11,000 employees and posted revenue of $2.4 billion in 2006. It has been working on projects like Boeing's 787 aircraft, the Airbus A380 as well as the Joint Strike Fighter military project.
Smiths will call an extraordinary shareholders meeting during the second quarter to approve the sale, which is also subject to regulatory approval.
Speaking on a conference call with reporters, Immelt said the acquisition complemented GE's existing business instead of being a consolidation, and he looked forward to "a constructive process" with EU antitrust regulators.
The European Union blocked GE's attempt to take over Honeywell in 2001, although the deal had been approved by U.S. regulators.
More Sales for Smiths?
Smiths Chief Executive Keith Butler-Wheelhouse said the decision to sell the aerospace arm was made last autumn.
"The structure of the aerospace industry is changing -- in particular its increased capital requirements and the growing importance of supplier scale, especially as the next generation of large programs kicks in."
Butler-Wheelhouse said he had approached GE about buying its Homeland Protection unit during the aerospace negotiations, but was turned down.
Butler-Wheelhouse said there are currently no talks to sell off the remaining Smiths units, but said "we reconsider these things continuously."
But Keith Bowman, equity analyst at Hargreaves Lansdown stockbrokers, said: "With the group's conglomerate mode now truly broken, the shares will now almost certainly continue to court further rumor and speculation as to the next divisional sale."