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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 group Sandvik has looked at a possible sale of its Sandvik Materials Technology (SMT) business but decided not to proceed with a deal, leaving the unit off the block for now, a company spokesman said on Tuesday.

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

"We have, during this period, evaluated some alternative scenarios with an external party, but reached the conclusion that there is no reason to proceed with this process," Sandvik Information Director Jan Lissaker said.

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

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

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

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

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

New Chief Executive Olof Faxander set a goal last year to turn around two of the group's five business areas - Materials Technology 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 Materials Technology unit has seen its operating margin improve steadily, though it remains well below the group average of 15.8 percent chalked 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 half of 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)(Reuters Messaging: niklas.pollard.reuters.com@reuters.net))

Keywords: SANDVIK SMT/