Shares in Midland engineering group GKN have soared by 12 per cent following its acquisition of the aero engine division of AB Volvo for £633 million.
Investors backed the deal to buy Volvo Aero which will help GKN benefit from global growth in airlines' aircraft orders.
The company’s shares were ahead 23.6p at 210.2p in the wake of the deal.
Volvo Aero designs, engineers and manufactures components and sub-assemblies for aircraft engine turbines, supplying all the major aero engine manufacturers.
The firm has positions on most major civil aerospace platforms that are set to increase as aircraft build rates ramp up.
The company said it believed its expertise in aero engines and Volvo’s strong metallic technology would create a “world leader in both aero structures and aero engine components”.
Around 3,000 people are employed by the firm at sites in Sweden, Norway and the USA.
Nigel Stein, chief executive, GKN plc, 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.”
The deal included £513 million of equity value (consideration) together with an anticipated Volvo Aero pension settlement (£50 million) and working capital refinancing (£70 million).
The acquisition is expected to be completed during the third quarter of 2012, subject to regulatory approvals.
It will be funded by new debt and a £140 million placing of new ordinary shares, representing approximately 5 per cent of GKN’s current market capitalisation.
For the year ending December 2011 Volvo Aero reported sales of £600 million and EBITDA of £75 million,
GKN said it expects Volvo Aero’s sales for 2012 to be around £670 million with EBITDA anticipated to be approximately £100 million.
The company added that the acquisition supported the growth strategy of GKN Aerospace.
Mr Stein added: “Volvo Aero has invested heavily to secure positions on new engine programmes, offering a long-term platform for growth.
“Its strong standing with customers, together with its skilled workforce and high quality engineering team, will be a valuable addition to GKN Aerospace.
“GKN Aerospace will now be a leader in the aero engine sector, complementing its leading position in composite aero structures.”