GE buys UK's Smiths aerospace unit for $ 4.8 bln

LONDON, Jan 15 (Reuters) General Electric has agreed to buy the aerospace business of Britain's Smiths Group Plc for .8 billion cash as it seeks to capitalise on a flood of new plane orders and robust U.S. military spending.

The two firms also said on Monday they had agreed to set up a joint venture for their detection businesses to be owned 64 percent by Smiths and 36 percent by General Electric.

Smiths, whose aviation unit makes flight management systems, said it planned to return 2.1 billion pounds (.1 billion) of the proceeds from the sale to shareholders.

Smiths shares soared over 16 percent.

''There's a lot more risk in the aerospace components business than there used to be and you have to have more capital, which is why GE is a perfect home for a business like this,'' said one analyst who declined to be named.

He added that Smiths had got a fairly good price for the unit -- an enterprise value of around 12.8 times his forecast earnings for 2008, or broadly in line with his break-up value of the Smiths business.

At 0810 GMT, Smiths shares were up 16.8 percent at 11.50 pounds.

''This acquisition is consistent with our strategy to invest in high-technology infrastructure businesses that deliver strong growth, earnings expansion and higher margins,'' GE Chairman and Chief Executive Jeff Immelt said in a statement.

The aerospace industry is benefiting from rising U.S.

military spending and strong plane orders amid a flurry of new projects by planemakers Boeing and Airbus.

But the new work has come at a cost, and Smiths aerospace unit has been hit by higher development costs.

''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 programmes kicks in,'' Smiths Chief Executive Keith Butler-Wheelhouse said in a statement.

''By selling aerospace, we crystallise the value for our shareholders,'' he added.

Smiths said it was aiming to close the deal in the second quarter of this year, and expected that it would allow the firm to pursue a ''progressive dividend policy''.

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