Tomkins, the engineering conglomerate hit by allegations of corporate excess, is in talks to sell its Smith & Wesson handgun maker at a loss. 

The sale of the company could pave the way for a takeover bid for the whole group. Some analysts say Smith & Wesson limits the company's strategic options, because it faces a number of lawsuits in the US. 

The news came as Ali Wambold, Tomkins' senior non-executive director, retired from the board following the completion of a strategic review prompted by Mr. Hutchings' resignation in October. 

David Newlands, chairman, on Tuesday said Tomkins was in talks with two US gun companies. However, he admitted Smith & Wesson would fetch less than the $112m (£76m) paid by Tomkins in 1987 "We're not going to get a fantastic price for it," he said, adding that the company wanted to sell Smith & Wesson with its contingent liabilities. 

Tomkins said it would not break up the company into its automotive and construction divisions, following a strategic review by McKinsey, Cazenove and Credit Suisse First Boston, but would carry out a £415m ($610 million) share buy-back. 

The review, and an Ernst & Young investigation into allegations that Mr. Hutchings had made personal use of company resources, cost Tomkins £6m. 

The company announced it was in talks with the Gates family, one of its largest shareholders, over its preference shares which could convert into a 20 per cent stake. 

The company said it would cut its final dividend by 42 per cent to 7.4p. Operating profits from continuing operations were virtually unchanged in the half year to October at £158m (£157.5 Million Pounds Sterling = $231.4 Million in U.S. Dollars).

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