European Firm Buying Combustion Engineering

Combustion Engineering Inc., a diversified international manufacturing and service concern, said Monday that it agreed to be bought by a European industrial conglomerate for $1.6 billion.

ABB Asea Brown Boveri Ltd., a Swiss-Swedish supplier of technical equipment and services, will pay $40 each for all of Combustion Engineering’s outstanding shares in a tender offer to start later this week.

Combustion Engineering stock surged $13.50 a share to close at $39 in heavy trading on the New York Stock Exchange, with analysts saying that they expect the European company to succeed with its friendly takeover bid.

The transaction is not subject to financing, the announcement said.

“They are paying top dollar for it,” said analyst George Gaspar at Robert W. Baird Inc., who noted that the offer was high enough to discourage any potential rivals.

Combustion Engineering evolved from a New Jersey company called the Locomotive Superheater Co., founded in 1910, into a provider of high-tech industrial products such as computerized controls for plants.

It restructured after its primary business of selling power plant equipment and services went into a decline in the early 1980s and has been successful selling the technology internationally. Some 40% of its sales come from abroad.

ABB Asea Brown Boveri Ltd., a supplier of electrical equipment and services for industry, has annual sales of about $20 billion and is owned by Sweden’s Asea AB and the Swiss-Swedish Brown Boveri et CIE AG.

Combustion Engineering, which supplies the power generation, process and public sector markets, had 1988 sales of about $3.5 billion.

The company said the offer will be subject to a number of conditions, including the tender of shares representing at least 80% of the outstanding stock.

A definitive merger agreement was approved by directors of both companies.