GKN Is Said to Lead Bidding for Volvo Aero After MTU of Germany Pulls Out

GKN Plc (GKN), a British maker of aircraft components for Airbus SAS, is the frontrunner to purchase Volvo AB’s (VOLVB) aircraft-engine unit after MTU Aero Engines Holding AG (MTX) dropped out of the sale process, people with knowledge of the situation said.

Other potential buyers, including buyout firms Carlyle Group LP (CG) and Nordic Capital, have scaled back their efforts after submitting initial offers, said the people, who declined to be identified because details of the sale are private. The winning bidder for the unit, which may fetch about 1 billion euros ($1.3 billion), may be announced in the next few weeks, one of the people said.

Volvo said in November it would sell the aero-engine unit to focus on heavy trucks and construction equipment in the Gothenburg, Sweden-based company’s biggest structural shift since splitting off its car division a decade ago. The Volvo Aero unit equips aircraft such as Saab AB (SAABB)’s Gripen fighter jet.

Some automotive manufacturers are turning to spinoffs and asset sales to focus on narrower product ranges and streamline investment requirements. Italian carmaker Fiat SpA (F) last year spun off Fiat Industrial, its truck and tractor business.

A spokesman for GKN declined to comment yesterday, as did representatives of MTU, Carlyle, Volvo and Nordic Capital.

Volvo declined as much as 0.5 percent to 96.65 kronor and was trading down 0.4 percent at 9:50 a.m. in Stockholm. GKN fell as much as 1.2 percent to 219.8 pence in London.

GKN’s Forecast

For GKN, the asset is an opportunity to further broaden its offering after a 2011 that Chief Executive Officer Nigel Stein referred to as a “year of transition” for the aerospace division, with an accelerating civil aviation market countering lower military orders.

Stein said on a Feb. 28 conference call that he will remain disciplined on what he would pay for acquisitions and that Redditch, England-based GKN has looked “at a lot of things over the years.”

GKN has four divisions, of which aerospace is the second- largest by revenue. The aerospace business increased sales 4 percent to 1.48 billion pounds ($2.36 billion) in 2011, lagging underlying revenue growth at the other three divisions.

In addition to complete engines, Volvo’s aero-engine unit makes components including compressor rotors, turbine structures and fan cases. The division’s operating profit fell to 151 million kronor ($22 million) in the fourth quarter from 282 million kronor a year earlier. Sales increased 1 percent.

The Swedish truckmaker has been active in aviation systems since the 1940s. The business traces its roots to a Swedish Air Force order for 40 aircraft engines placed with a locomotive manufacturer in 1930, according to Volvo Aero’s website.

To contact the reporters on this story: Matthew Campbell in London at mcampbell39@bloomberg.net; Ola Kinnander in Stockholm at okinnander@bloomberg.net

To contact the editors responsible for this story: Benedikt Kammel at bkammel@bloomberg.net; Jacqueline Simmons at jackiem@bloomberg.net

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