Spirit Surges on Speculation GKN Will Buy for $5 Billion

Spirit Aerosystems Holdings Inc., the aerospace supplier that makes parts for Boeing Co. and Airbus SAS, jumped to an 11-month high after the Daily Mail said GKN Plc is readying a takeover bid for about $35 a share.

The shares rose 5.7 percent to $25.45 at the close in New York, the highest price since Aug. 21, extending its annual gain to 50 percent. Redditch, England-based GKN fell 4.2 percent to 326.80 pence in London.

GKN is preparing a cash-and-stock offer valued at $5 billion, according to the Daily Mail report, which cited unidentified dealers. Bank of America Corp.’s Merrill Lynch is advising GKN, according to the report. A buyout would be a boost for investors as Wichita, Kansas-based Spirit struggles to meet financial forecasts, said Robert Stallard, a New York-based analyst at Royal Bank of Canada.

“Given the lack of profitability on its current development programs and a lack of cash generation, a bid at the reported level would seem extremely generous,” Stallard, who has a sector perform rating on the stock, wrote in a note.

GKN isn’t commenting on the report, a spokesman, Chris Fox, said by phone. Chief Executive Officer Nigel Stein said in February the company was ready to do deals after last year’s purchase of Volvo AB’s aerospace unit for 633 million pounds ($972 million).

Spirit also declined to comment on the GKN speculation, Ken Evans, a spokesman, said by phone.

‘Fresh Equity’

“GKN may need to raise fresh equity to fund any deal,” Andrew Carter, another RBC analyst, said in a separate note. This is the most “logical strategy,” given its defined benefit pension net liabilities, he said.

U.K. takeover rules generally require a company to make an announcement when the share price moves on an accurate rumor.

Spirit manufacturers aerostructures for all of Boeing’s commercial planes currently in production, including the 787 Dreamliner, according to its website. Spirit was previously a unit of Boeing before Canadian buyout firm Onex Corp. purchased it in 2005. It’s been publicly traded since November 2006. Boeing still makes up about 84 percent of sales at Spirit, which supplies a majority of the airframe in the 737 model.

Airbus, its second-largest customer, is considering buying one of Spirit’s factories to limit production risks on its A350 program by monitoring its suppliers and step in early when issues arise, an executive said last month.

Spirit Layoffs

Spirit struggled recently with its own suppliers on capacity and costs as planemakers around the world boost output similtaneously. About 360 salaried support and management employees in Kansas and Oklahoma facilities are receiving layoff notices as Spirit works to cut expenses, according to a statement today.

GKN also makes parts for Boeing’s 787 Dreamliner and is a supplier to the A350, producing composite parts for wings on the long-range jet, which had its first flight last month. GKN has been expanding its aerostructure activities since the purchase in 2008 of Airbus’s Filton production facilities for 136 million pounds.

“I’m sure GKN has more than a passing interest in Spirit, but I’m sure it is entirely platonic,” Sandy Morris, a London-based analyst at Jefferies LLC, said by phone. GKN is still digesting Volvo Aero and investors wouldn’t react well if it sought to raise equity to buy the U.S. company, he said.

Acquiring only a part of Spirit, specifically wing activities, would make more sense, Morris said, whereas taking over fuselage structure work the company does for Boeing would hold little value for GKN.