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Tue, Jan 16, 2007 - Page 10 News List

GE to purchase Smiths aerospace unit

SYNERGY Subject to Smiths shareholders' approval, the deal would allow GE to tap into the London-based firm's growing business of supplying Boeing and Airbus parts

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General Electric Co, the world's biggest jet-engine maker, has agreed to buy Smiths Group Plc's aero-space business for US$4.8 billion amid record demand for commercial aircraft.

The purchase of the Smiths unit, which makes electronic controls, is subject to approval by Smiths shareholders and regulators, Fairfield, Connecticut-based GE said yesterday in a statement. Smiths plans to return ?2.1 billion (US$4.12 billion) to shareholders, the company said in a separate statement.

Chief executive officer Jeffrey Immelt wants to tap surging orders for Boeing Co and Airbus SAS aircraft parts amid rising travel overseas and plans by the US military to develop new planes. The purchase would give GE some of the breadth it failed to get when the EU rejected its US$45 billion bid for Honeywell International Inc in 2001.

"Smiths might make some real sense for GE," Teal Group ana-lyst Phil Finnegan said before the announcement.

The Smiths business competes in some areas with Honeywell, Goodrich Corp, United Technologies Corp's Hamilton Sundstrand unit and Rockwell Collins Inc.

Smiths in the past two years faced pressure from investors after the company's results missed some forecasts, Credit Suisse analysts including Steve East said in November. Smiths had a second-half loss of ?109.3 million after writing off an investment in auto parts maker TI Automotive Ltd.

GE shares fell US$0.03 to US$37.89 on Friday on the New York Stock Exchange trading. They gained 6.2 percent last year. US markets were closed yesterday for the Martin Luther King Jr holiday. Smiths rose ?0.01 to ?9.85 in London on Friday.

Smiths will also form a joint venture with GE to combine the pair's detection and homeland-protection assets, the UK company said separately. Smiths GE Protection will be 64 percent-owned by Smiths and chaired by its CEO Keith Butler-Wheelhouse.

GE plans to buy about US$7 billion in non-financial assets this year, Immelt said at a meeting last month with analysts.

Immelt has spent almost US$70 billion on acquisitions since taking the helm in 2001, and people familiar with the talks said last week that he is seeking as much as US$10 billion in an auction of GE's plastics unit.

Analysts including Merrill Lynch & Co's John Inch and Credit Suisse's Nicole Parent said he may funnel some of the proceeds into more acquisitions.

Last week she identified aero-space as one possible market, and analysts said Immelt's US$7 billion goal excludes any purchases made with the plastics sale proceeds.

Chicago-based Boeing this month said orders reached a record last year, the second straight record-setting year at the world's second-largest maker of commercial planes.

The industry is benefiting from demand in Asia and the Middle East, where the number of first-time air travelers is growing along with regional economies and airline deregulation. The Smiths aerospace business won't peak until 2009 "at the earliest," Credit Suisse said.

Smiths also has no overlap with GE's products. The company is developing computer systems and equipment for Airbus' A380 superjumbo jet and Boeing's fuel-efficient 787 model and its 767 military refueling tanker. Smiths also makes military airframes and compon-ents, including some for Lockheed Martin Corp's F-35 plane, formerly known as the Joint Strike Fighter.

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