Chris Jasper/LONDON
Smiths Industries says it is ready to respond to further consolidation among its tier-one supplier rivals, despite failing to top up its war chest, with no buyer having been found for an automotive division which it inherited when it bought TI Group for its Dowty aerospace business.
Though diversified, Smiths sees aerospace (which doubled in size with the TI deal) as a core activity, and tier-one status as key to delivering better returns. Smiths could face a challenge in retaining that status if fast-consolidating US rivals make new merger moves, with the acquisition of Dowty complicating the task by broadening an aerospace portfolio, once centred on flight and electrical power management, into hydraulics and actuation systems.
"The industry will continue to consolidate and we do think that first-tier status is important," says chief executive Keith Butler-Wheelhouse. "It's about more than just kudos - it's about being paid the bill by the prime rather than an intermediary, which is more lucrative, and about aftermarket sales.
"Aerospace is the only key sector where size matters. It was easier to be tier one when we were only in electronics and avionics. With Dowty we are in new areas, but can play an active part in consolidation. We had that aim with the TI deal; it was about having extra firepower."
Smiths is relaxed about mergers at the GE/Honeywell level, but sees Rockwell Collins, Thales Avionics and Goodrich as competitors. The latter remains merger-minded, while Butler-Wheelhouse identifies Collins, demerged from its parent, as a potential merger target, revealing that the two have "flirted" with a move before.
Smiths had offers of $1.2 billion for its automotive arm, but a US car production slowdown meant they later dipped below the $900 million reserve price. TI Automotive (as it is to be known) will become a standalone concern, with hopes for a later sell-off. Smiths' sales and operating profits rose 14% in the half to 31 January.
Source: Flight International
