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GKN Upgrades Aerospace Stakes With Fokker Buy

07/28/2015 | 05:06am US/Eastern

LONDON?GKN PLC has agreed to buy the Netherland's historic Fokker Technologies Group BV as the British engineering company deepens its bet on the aerospace sector.

The British supplier of plane parts to Boeing Co. and Airbus Group SE said it would buy Fokker for ?706 million ($779.98 million), including debt, from private-equity owner Arle Capital.

Fokker, which dates back to the earliest days of flight, was one of the world's largest plane makers before it entered bankruptcy in the 1990s. The company's plane parts business, which was later revived, is what is now being sold.

Back in 2012 GKN acquired Volvo's aircraft engine unit to boost its aerospace activities after making a big bet on the sector in 2008 by purchasing some of Airbus's manufacturing operations in Filton, England. Demand for plane parts has been booming as Boeing and Airbus have built record order books for commercial planes amid global growth for carriers and demand for more fuel efficient planes.

"Aerospace has been our top priority for acquisitions," said Chief Executive Nigel Stein.

GKN said the deal would expand the company's activities in plane structures and bring it into the plane wiring business. It will also expand the company's aerospace activities in the growing Chinese market, Mr. Stein said, as the company's combined aerospace sales reach about £ 3 billion annually.

Investors cheered the move, sending GKN shares up more than 4%.

Fokker brings with it strong contractual positions on new programs such as the Airbus A350 long-range jet, which is early in its production run and the Lockheed Martin Corp. F-35 Joint Strike Fighter, the Pentagon's most expensive plane program.

The Dutch unit notched sales of ?758 million in 2014 and a margin of around 7%. Mr. Stein said profitability should rise in the next three years.

The deal comprises a ?500 million cash consideration and assumption of liabilities totaling ?206 million. GKN said it intended to part finance the acquisition through a £ 200 million pound share placing.

The Fokker deal isn't without risk. The Dutch company remains in dispute with the U.S. government over an unlawful transaction with Iran that violated sanctions.

GKN Chief Financial Officer Adam Walker said "we feel comfortable that there that is no material ongoing liability or risk for GKN as part of this." The timing of the purchase wasn't related to a recent nuclear accord between Western governments and Iran that raises the prospect for an end to sanctions, he said.

GKN said it expected the deal to add to its earnings already this year, though it also faces around £ 35 million in integration costs in 2015 and 2016. Job losses would likely be part of the savings the company expects to generate in the coming years, Mr. Stein said. The savings should reach 3% of sales, the company said.

Mr. Stein said it was too early to say if some of Fokker Technologies's businesses would later be sold.

GKN and Arle said they expected the deal to close at the end of the year, pending regulatory approval, including from the U.S.

Separately, GKN said for the six months to June 30, the company that also makes automotive parts, reported a pretax profit of £ 212 million, down from £ 224 million in the same period a year earlier. Revenue for the half year rose by 1% to £ 3.62 billion.

Profit, before tax and certain exceptional items, rose by 4% to £ 307 million. It declared an interim dividend of 2.9 pence per share, up 4% from 2.8 pence paid a year ago.

Mr. Stein said the company remained committed to its automotive activities and would invest and make deals if the right opportunities arise.

Tapan Panchal contributed to this article.

Write to Robert Wall at robert.wall@wsj.com

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