GKN raises cash to buy Volvo aero arm

Global engineering firm GKN said it had agreed to buy Volvo's aero engine division and would turn to institutional investors to raise money to help pay for it.

The company plans to pay AB Volvo around £633m for Volvo Aero, which designs, engineers and manufactures components for aircraft engine turbines.

To help fund the deal GKN aims to place £140m of new shares with institutional investors, with the rest of the money coming from new debt facilities.

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The placing represents about 5% of the firm's market capitalisation based on its 4 July 2012 closing share price.

The company expects that the deal will improve GKN's earnings per share on a management basis and generate a return on invested capital that exceeds the group's pre-tax weighted average cost of capital of 12% by 2013.

GKN Chief Executive, Nigel Stein, said: "This is a highly attractive acquisition for GKN creating a market leader in aero engine components".

"With excellent technology and strong life-of-programme positions on most civil aero engines, Volvo Aero will significantly enhance GKN Aerospace's engine components business," he added.

The company also released a brief trading update, saying business performance in April and May continued in line with the first quarter of the year.

Overall, group sales for the five months to 31 May 2012 increased 17%, with underlying sales up 9%.

Management trading profit increased 23%, up 13% on an underlying basis.