UPDATE 1-Sandvik says mulled SMT sale but backed out

* Evaluated options for SMT with external party-spokesman

* Says decided to abandon process

* Says has no current plans to sell SMT unit

* Sources say process was at early stage

(Adds sources, detail, background)

STOCKHOLM, Oct 9 (Reuters) - Swedish engineering groupSandvik has looked at a possible sale of its SandvikMaterials Technology (SMT) business but decided not to proceedwith a deal, leaving the unit off the block for now, a companyspokesman said on Tuesday.

The comments came after a newspaper report that thecompany's board had blocked a divestment of the unit, which haslagged the group in terms of profitability for years and wherenew management is leading a push to restructure.

"We have, during this period, evaluated some alternativescenarios with an external party, but reached the conclusionthat there is no reason to proceed with this process," SandvikInformation Director Jan Lissaker said.

"This means that there at present exist no plans to divestMaterials Technology, and that is a conclusion that the boardand executive management have reached jointly."

Sources with knowledge of the matter, who declined to beidentified because they were not authorised to speak publicly,told Reuters Sandvik had enlisted financial advisory firmGreenhill a couple of months ago to look into a possible sale ofthe business area.

The sources said private equity firms had shown interest forthe unit, but that Sandvik had concluded it would not be able toget a satisfactory price at the moment and would continueworking on its profitability instead.

One of the people said some of the private equity firms hadmet with SMT's top management, but had received no proprietaryinformation about the unit and that the process had been at anearly stage before being abandoned.

The manufacturer of products from stainless steel alloys totools for rock drilling is restructuring after slipping into thered during the 2008/2009 financial crisis, aiming for annualisedcost savings of 1 billion crowns ($150.7 million) this year.

New Chief Executive Olof Faxander set a goal last year toturn around two of the group's five business areas - MaterialsTechnology and Construction in two to three years time.

If that wasn't possible, a sale would be considered.

Since the plans were unveiled last year, the MaterialsTechnology unit has seen its operating margin improve steadily,though it remains well below the group average of 15.8 percentchalked up in the first half of the year.

"The strategy we launched for Sandvik a year ago holds firm.It has delivered very satisfactory results during the first halfof the year, not least as regards Materials Technology,"Lissaker said.($1 = 6.6366 Swedish crowns)

(Reporting by Sven Nordenstam; writing by Niklas Pollard)

((Niklas.Pollard@thomsonreuters.com)(+46 70721 1110)(ReutersMessaging: niklas.pollard.reuters.com@reuters.net))

Keywords: SANDVIK SMT/

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