Smiths, GE call off JV
Smiths and GE thought that bringing their considerable detection know-how and assets together in a JV would create a mighty player in homeland security; but Smiths’s detection unit has been doing very well on its own, so the rationale for a JV was no longer as compelling
You win some, you lose some. U.K. technology firm Smiths Group and General Electric today said they had decided not to proceed with the formation of their proposed joint venture, Smiths GE Detection. In March of this year the two firms said they had agreed to form a joint venture, but today both parties said they now believe the interests of both businesses would be best served by remaining independent. Smiths Group was set to take a 64 percent stake in the joint venture which would have seen Smiths Detection combine with GE’s Homeland Protection business. Smiths previously said the JV would consolidate its performance as a subsidiary, with GE holding the balancing minority interest. “We couldn’t agree on a shared strategic vision and what we mean by that is that we didn’t really have the same view of markets, technologies and how they will develop over time. You can’t really go in to specifics there without telling all of your competitors what you’re going to do,” a Smiths Group spokesperson said. At the interim period, Smiths said the combination of the two businesses would create a strong competitor in the detection sector. It was due to offer a range of products, including equipment needed for checked baggage inspection at airports. Smiths was also due to nominate four of the six directors, including the chairman and president, with GE set to nominate the other two.
Smiths is upbeat despite the break-down of the venture. “I am certain that, as an independent business, Smiths Detection has the flexibility, resources and technology to continue to serve our customers as their needs change and grow,” Keith Butler Wheelhouse, the CEO of Smiths said in a statement. Smiths’ detection business has grown impressively over the last twelve months because of increasing concerns about security. Ferrovial-owned airport operator BAA recently ordered 63 of Smiths’ hand luggage scanners and the group is expected to see a 7 percent increase in pretax profits when it anounces its final results next week. Smiths denied that it had pulled out of the deal because of an upturn in its fortunes. “I won’t deny that business is going very well but we don’t really comment on speculation and the reasons we gave are the reasons behind the decision,” the spokesman said.
Under the terms of the proposed deal, a change of control at Smiths would have allowed GE to take full control of the detection business. Smiths said that because the decision to terminate the JV was mutual, it would not need to pay the £35 million break fee. Note that the parties’ existing joint cooperation agreement is unaffected by today’s announcement, Smiths added.
