General Electric Co., the world’s largest maker of aircraft engines, agreed Monday to buy the aerospace business of Smiths Group, Britain’s third-largest aerospace company, for $4.8 billion in cash.
Smiths would return $2.1 billion to shareholders, the London-based company said. GE and Smiths also announced plans for a joint venture called Smiths GE Detection.
The market reacted enthusiastically, pushing Smiths shares up 11% on the London Stock Exchange. The company has been under shareholder pressure to break itself up but has resisted.
Fairfield, Conn.-based GE said the purchase would broaden its aerospace portfolio by adding Smiths’ systems for controlling aircraft in flight.
“GE Aviation is growing about 10% a year, and this acquisition gives us a technology growth platform that will be accretive to our net income and will deliver immediate and future value for our investors,” GE Chief Executive Jeffrey Immelt said in a statement.
Smiths Aerospace has more than 11,000 employees and posted revenue of $2.4 billion in 2006. It has been working on projects such as Boeing’s 787 aircraft and the Airbus A380 as well as the Joint Strike Fighter for the U.S. military.
Smiths will call a shareholder meeting in the second quarter to approve the sale, which is also subject to regulatory approval.
Immelt said in a conference call with reporters that the acquisition would complement GE’s business instead of being a consolidation and that he looked forward to “a constructive process” with European antitrust regulators.
The European Union blocked GE’s attempt to take over Honeywell International Inc. in 2001, although the deal had been approved by U.S. regulators.
Smiths CEO Keith Butler-Wheelhouse said the decision to sell was made last autumn.
“The structure of the aerospace industry is changing -- in particular its increased capital requirements and the growing importance of supplier scale, especially as the next generation of large programs kicks in,” he said.
The new Smiths GE Detection joint venture would combine Smiths’ Detection operations with GE Homeland Protection. Smiths would own 64% and GE would own 36%.