UPDATE 1-Bodycote to sell testing unit for 417 mln stg

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LONDON, Aug 28 (Reuters) - British engineer Bodycote (BOY.L) has agreed to sell its testing business (BTG) to U.S. private equity firm Clayton, Dubilier and Rice (CD&R) for 417 million pounds and will return 260 million pounds to shareholders. The sale will be made on a cash and debt-free basis, with a vendor loan note in respect of 65 acres of surplus land near the site in Mississauga, Canada, said Bodycote, which announced its intention to sell the world-leading business in April.

"The time is right to realise this value for our shareholders, allowing Bodycote to concentrate on its thermal processing business and enabling it to deliver its full potential," Bodycote Chairman Alan Thomson said in a statement.

The completion of the sale, which is expected to go through by the end of October 2008, will see Bodycote return around 80 pence per share to shareholders.

BTG provides technical engineering and safety services to the energy, transportation, food and medical device industries, among others.

At 0745 GMT shares in Bodycote were trading 6.1 percent higher at 222.75 pence.

The acquisition will boost CD&R's industrial interests, which include electronics distributor Rexel (RXL.PA).

Fred Kindle, a CD&R Operating Partner, will serve as Chairman of BTG, the firm said.

"As a market leading, multi-location services business with customers in diversified and resilient industries, BTG exhibits the key characteristics that we look for in all of our investments," said Donald J. Gogel, President and Chief Executive of CD&R in a statement. (Editing by Will Waterman)