15th Jan 2007 07:01
Smiths Group PLC15 January 2007 FOR IMMEDIATE RELEASE 15 January 2007 SMITHS GROUP PLC SALE OF SMITHS AEROSPACE DIVISION Smiths Group plc agrees the sale of Smiths Aerospace division to General Electric Company for US$4.8 billion and proposes return of £2.1 billion to shareholders Smiths Group plc ("Smiths" or the "Company") announces that it has agreed tosell Smiths Aerospace division ("Aerospace") to General Electric Company ("GE")for a total cash consideration of US$4.8 billion (the "Sale"). Following theSale, the board of directors of Smiths (the "Board") proposes to return £2.1billion to shareholders. Highlights: • The disposal price for Aerospace of US$4.8 billion recognises the high quality of the business together with Smiths substantial investment in aerospace technology over the past several years. • The Sale accelerates the delivery of returns to shareholders. • Smiths continuing businesses serve strong and growing markets. The Board believes that the continuing Smiths Group has enhanced financial characteristics and is well positioned to generate substantial returns. A separate announcement is being made today in relation to the further development of Smiths Detection. • Following completion of the Sale, Smiths is expected to generate improved returns on capital and enhanced margins. The net effect of the Sale and the intended return of capital to shareholders would have been accretive to Smiths headline earnings per share for pro forma 2006. • The Board has assessed the capital structure of the Company. Following the intended return of capital to shareholders, Smiths is expected to have debt ratings of Baa2 and BBB+. The Board is satisfied that the Company has flexibility to execute its strategy whilst maintaining a solid investment grade rating. The Board also believes that the enhanced financial characteristics of the Company will enable a progressive dividend policy, targeting dividend cover of 1.8 times. • The Board proposes, subject to completion of the Sale and shareholder approval, to return £2.1 billion - out of the net proceeds estimated to be £2.25 billion - by means of a B share scheme, combined with a share consolidation, shortly after the completion of the Sale. • The Sale is conditional, amongst other things, upon obtaining merger and anti-trust clearances, including in the United States and from the European Commission, and the approval of Smiths shareholders at an extraordinary general meeting (the "Extraordinary General Meeting"). The Sale is targeted for completion during the second quarter of 2007. Keith Butler-Wheelhouse, Chief Executive of Smiths, commented: "Our objective is to create superior shareholder value. We focus our investmentwhere we can take leading positions in growth markets. This has certainly beentrue in Aerospace. Over the past five years, we have invested heavily inaerospace technology. This investment, together with the successful efforts ofour dedicated employees, has won us positions on every major military andcommercial programme. This is a great achievement by the Aerospace team. "The structure of the aerospace industry is changing - in particular itsincreased capital requirements and the growing importance of supplier scale,especially as the next generation of large programmes kicks in. "The Board has considered these issues and the opportunities for Smiths goingforward and last autumn instigated a thorough process which has led to today'sannouncement. By selling Aerospace, we crystallise the value for ourshareholders. At the same time, we know that this business is going to a greatowner. "Looking forward, Smiths continuing businesses serve markets with attractivegrowth prospects, enabling delivery of enhanced returns and strong cashconversion." This summary should be read in conjunction with the full text of the followingannouncement. A presentation for analysts and investors will be hosted today at 9:30am (UKtime) at the Savoy Hotel, Strand, London WC2R 0EU by Keith Butler-Wheelhouse,Chief Executive of Smiths, and Jeff Immelt, Chairman and Chief Executive Officerof GE. The event will be webcast live at www.smiths.com. Alternatively,interested parties can listen in to the live briefing via telephone by calling+44 (0) 20 7138 0816 or +1 718 354 1171 (listen only). An interview with KeithButler-Wheelhouse and Jeff Immelt can be seen on www.smiths.com andwww.cantos.com For media, a joint press conference will be hosted today at 11:30am (UK time) atthe Savoy Hotel, Strand, London WC2R 0EU. For bondholders, a conference call will be hosted by John Langston, Smiths GroupFinance Director, today at 1:00pm (UK time). Dial-in: +44 (0) 1452 587356. A circular (the "Circular") containing further details of the Sale and settingout the notice of the Extraordinary General Meeting will be sent to Smithsshareholders. Contacts: Smiths Group plc +44 (0) 20 8458 3232Russell Plumley (Investor Relations)Chris Fox (Media) Lead Financial Adviser Evercore Partners +44 (0) 20 7268 2712Bernard TaylorJulian Oakley Joint Financial Advisers and Brokers Credit Suisse +44 (0) 20 7888 8888James Leigh-PembertonAlex Phillips JPMorgan Cazenove +44 (0) 20 7588 2828David MayhewEdmund Byers PR Adviser Brunswick +44 (0) 20 7404 5959Jon ColesJonathan Glass Evercore Partners Limited ("Evercore Partners"), which is authorised andregulated in the United Kingdom by the Financial Services Authority, is actingfor Smiths and no one else in connection with the matters referred to in thisannouncement and will not be responsible to any person other than Smiths forproviding the protections afforded to clients of Evercore Partners, or forproviding advice in relation to these matters. Credit Suisse Securities (Europe) Limited ("Credit Suisse"), which is authorisedand regulated in the United Kingdom by the Financial Services Authority, isacting for Smiths and no one else in connection with the matters referred to inthis announcement and will not be responsible to any person other than Smithsfor providing the protections afforded to clients of Credit Suisse, or forproviding advice in relation to these matters. JPMorgan Cazenove Limited ("JPMorgan Cazenove"), which is authorised andregulated in the United Kingdom by the Financial Services Authority, is actingfor Smiths and no one else in connection with the matters referred to in thisannouncement and will not be responsible to any person other than Smiths forproviding the protections afforded to clients of JPMorgan Cazenove, or forproviding advice in relation to these matters. FOR IMMEDIATE RELEASE 15 January 2007 SMITHS GROUP PLC SALE OF SMITHS AEROSPACE DIVISION Smiths Group plc agrees the sale of Smiths Aerospace division to General Electric Company for US$4.8 billion and proposes return of £2.1 billion to shareholders Smiths Group plc ("Smiths" or the "Company") announces that it has agreed tosell Smiths Aerospace division ("Aerospace") to General Electric Company ("GE")for a total cash consideration of US$4.8 billion (the "Sale"). Following theSale, the board of directors of Smiths (the "Board") proposes to return £2.1billion to shareholders. Aerospace Aerospace comprises two principal business units - Aerospace Systems andAerospace Components. Aerospace Systems designs, manufactures and providesin-service support for digital, electrical power and mechanical systems for boththe military and commercial markets. Aerospace Components supplies high-valuecomponents to the principal aircraft engine manufacturers. In addition, TimesMicrowave Systems Inc. ("TMS"), reported within Specialty Engineering, isincluded as part of the Sale. TMS products include components for military andcommercial aerospace, shipboard and wireless applications. Aerospace, headquartered in London, has approximately 11,500 employees andoperates manufacturing facilities in five countries. Aerospace has developedorganically and through the acquisition of Lear Siegler in 1987 and the mergerwith TI Group in 2001. Smiths has invested significantly over the past five years to position Aerospaceas a Tier 1 systems supplier and integrator. Aerospace Systems' products andservices include: common core computing systems, data monitoring and recordingsystems, flight management systems, mission and stores management systems,navigation products, cockpit displays, fuel systems, power distribution andmanagement, generators, power conversion, landing gear systems, high liftsystems, military mission systems, general actuation, structures and propellers.Aerospace Components supplies rings, combustors, injectors, shafts, outercasings, liners, mixers and other components for jet engines using specialisedmanufacturing technologies including flash welding, cold rolling, chemicalmilling, broaching and other complex processes. For the 53 week period ended 5 August 2006, Aerospace recorded operating profitsof £156 million on a turnover of £1.3 billion. Total Aerospace net assets beforeintercompany funding and gross assets were £808 million and £1,254 millionrespectively as at 5 August 2006. Background to and Reasons for the Proposed Sale The board of directors of the Company (the "Board") believes the agreed price ofUS$4.8 billion recognises the high quality of the business together with Smithssubstantial investment in aerospace technology. The sale accelerates thedelivery of value to shareholders. Smiths continuing businesses serve strong and growing markets. The Boardbelieves that the continuing Smiths Group has enhanced financial characteristicsand is well positioned to generate substantial returns. Keith Butler-Wheelhouse has agreed to defer his retirement by four months, to 31July 2008, in order to continue to lead Smiths Group as Chief Executivethroughout the coming financial year. Further Details of the Proposed Sale A Circular setting out the notice of the extraordinary general meeting (the"Extraordinary General Meeting"), including the recommendation of the Board tovote in favour of the Sale, will be sent to Smiths shareholders as soon aspracticable. The Sale is conditional, amongst other things, upon obtaining merger andanti-trust clearances, including in the United States and from the EuropeanCommission, and the approval of Smiths shareholders at an Extraordinary GeneralMeeting The Sale is targeted for completion during the second quarter of 2007. Smiths has agreed to pay GE a break fee in the event that Smiths shareholders donot vote in favour of the Sale. GE has agreed to pay Smiths a break fee in theevent the Sale does not complete due to GE's failure to use reasonableendeavours to obtain certain regulatory approvals. In each case, the amount ofthe break fee has been set at approximately US$110 million. Return of Capital to Shareholders and Financial Impact The Board believes that the Sale, as well as Smiths continuing cash-flowprofile, enables the disposal of Aerospace to be accompanied by a return ofcapital to shareholders. The Board proposes to return £2.1 billion - out of thenet proceeds estimated to be £2.25 billion - following completion of the Sale bymeans of a B share scheme, combined with a share consolidation, shortly afterthe completion of the Sale. The capital return will be subject to shareholders'approval at a separate extraordinary general meeting (the "Extraordinary GeneralMeeting for the Return of Capital"). The proposed return of capital is equivalent to approximately 37 percent of themarket capitalisation of Smiths as at 12 January 2007 and the effect of theshare consolidation would be to reduce the number of ordinary shares in issue bythe appropriate percentage, by reference to the market capitalisationimmediately following completion. The net effect of the Sale and the intended return of capital to shareholderswould have been accretive to Smiths headline earnings per share for pro forma2006 and similarly would have reduced year end net debt to approximately £800million. The tax impact of the Sale on the continuing Smiths is expected to be minimal. A circular will be sent to shareholders shortly after completion of the Sale,convening the Extraordinary General Meeting for the Return of Capital to approvethe share consolidation accompanying the proposed B Share scheme. Prospects for the Continuing Smiths Following the Sale, Smiths three divisions, Detection, Medical and Specialty serve markets with attractive growth prospects, offering good prospects forenhanced returns. The Board has assessed the capital structure of the Company. Following theintended return of capital to shareholders, Smiths is expected to have debtratings of Baa2 and BBB+. The Board is satisfied that the Company hasflexibility to execute its strategy whilst maintaining a solid investment graderating. The Board also believes that the enhanced financial characteristics ofthe Company will enable a progressive dividend policy targeting dividend coverof 1.8 times. Contacts: Smiths Group plc +44 (0) 20 8458 3232Russell Plumley (Investor Relations)Chris Fox (Media) Lead Financial Adviser Evercore Partners +44 (0) 20 7268 2712Bernard TaylorJulian Oakley Joint Financial Advisers and Brokers Credit Suisse +44 (0) 20 7888 8888James Leigh-PembertonAlex Phillips JPMorgan Cazenove +44 (0) 20 7588 2828David MayhewEdmund Byers PR Adviser Brunswick +44 (0) 20 7404 5959Jon ColesJonathan Glass Evercore Partners Limited ("Evercore Partners"), which is authorised andregulated in the United Kingdom by the Financial Services Authority, is actingfor Smiths and no one else in connection with the matters referred to in thisannouncement and will not be responsible to any person other than Smiths forproviding the protections afforded to clients of Evercore Partners, or forproviding advice in relation to these matters. Credit Suisse Securities (Europe) Limited ("Credit Suisse"), which is authorisedand regulated in the United Kingdom by the Financial Services Authority, isacting for Smiths and no one else in connection with the matters referred to inthis announcement and will not be responsible to any person other than Smithsfor providing the protections afforded to clients of Credit Suisse, or forproviding advice in relation to these matters. JPMorgan Cazenove Limited ("JPMorgan Cazenove"), which is authorised andregulated in the United Kingdom by the Financial Services Authority, is actingfor Smiths and no one else in connection with the matters referred to in thisannouncement and will not be responsible to any person other than Smiths forproviding the protections afforded to clients of JPMorgan Cazenove, or forproviding advice in relation to these matters. About Smiths Smiths (LSE: SMIN), a FTSE listed company with a market capitalisation ofapproximately £5.6 billion, is a global applied technology business withmarket-leading positions worldwide in its three chosen areas of specialisation.Its customers range from defence contractors to petrochemical companies tohospitals. Headquartered in London, Smiths has its manufacturing businessesprincipally in the U.K., U.S.A. and continental Europe. For more information,visit the Company's website at www.smiths.com. About Aerospace Aerospace, a division of Smiths, is a leading global aerospace systems company,with approximately 11,500 employees. Aerospace provides key systems on all majormilitary and civil aircraft platforms and highly engineered components to allthe major aircraft engine manufacturers as well as associated aftermarket partsand repairs for both its systems and components business lines. About GE GE (NYSE: GE) is Imagination at Work - a diversified technology, media andfinancial services company focused on solving some of the world's toughestproblems. With products and services ranging from aircraft engines, powergeneration, water processing and security technology to medical imaging,business and consumer financing, media content and advanced materials, GE servescustomers in more than 100 countries and employs more than 300,000 peopleworldwide. For more information, visit the GE web site at www.ge.com About GE Aviation GE Aviation is one of the world's leading producers of large and small jetengines for commercial and military aircraft. GE Aviation also supplyaircraft-derived engines for marine applications and provide aviation services. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Smiths GroupGEC.L