GKN has ended all the speculation and bought Volvo Aero, and the £633m price tag is substantially less than expected. That means it needs to raise less money from existing investors, so little wonder the shares are popular.
Rumours first surfaced in March and, as rivals dropped out, GKN always looked the most likely buyer. But concerns about how it would finance a deal, with a mooted price tag north of £700m, spooked the market. It's put those fears to bed. The purchase will be funded by new debt and a £140m placing at 200p a share, less than half the figure analysts had feared.
And it looks a good fit. Volvo Aero makes parts for aircraft engine turbines used by all the big engine manufacturers, so is heavily exposed to the ramp up in civil aerospace production. Sales are expected to jump 12 per cent this year to £670m and cash profits soar by a third to £100m. And operational improvements and cost savings should guarantee Volvo's operating margin hits GKN's target range of 11-13 per cent in 2013. The existing business is doing well, too. With five months of the first half gone, underlying sales are up 9 per cent and trading profit up 13 per cent.
