Friday, 23 February, 2018


Engineering giant GKN rejects £7bn takeover bid from Melrose

A decision by GKN whose technology is used in the Ariane 5 rocket to separate its aerospace and automotive business after an approach has boosted its shares Engineering giant GKN rejects £7bn takeover bid from Melrose
Bennie Garza | 13 January, 2018, 04:25

Engineering company GKN PLC said Friday it has rejected a GBP7 billion unsolicited takeover approach from turnaround specialist Melrose Industries PLC, and has chose to split its divisions as part of a new two-year profit improvement programme.

GKN's shares jumped by more than a quarter to an all-time high of 420p on the news, above the initial 405p cash and share offer on the table from turnaround specialist Melrose.

The shares rose 20% in early trading to 400p.

Its board, in tandem with financial advisers Gleacher Shacklock, JP Morgan Cazenove and UBS, "unanimously rejected" the proposal, which it deemed "entirely opportunistic" and to "fundamentally undervalue" the company and its prospects. But Melrose shares have subsequently climbed 7%, lifting the value of the offer to 422p a share.

Melrose has until 9 February to either make a firm bid or walk away. The company further announced that it was planning to separate its aerospace and automotive businesses. GKN acknowledges that profit margins and cash generation have been "below expectations", despite a rise in sales.

The firm issued a profit warning in October over problems at its aerospace division.

Also included in the statement issued today reveals plans to split the aerospace and automotive divisions into separate companies, and that Anne Stevens, now Interim Chief Executive, agreeing to become the Group's new Chief Executive with immediate effect.

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: "The separation of the automotive and aerospace units has been on the cards for years, with little obvious crossover between the two businesses".

"Historically, the pension deficit has held the group together, but with the sprawling footprint likely to have contributed to recent profit warnings, the reasons for divorce now seem to outweigh the costs of splitting", he said.

GKN said earlier this month it has now appointed Anne Stevens to run the group on a permanent basis after she took up the role of interim CEO in November.

The takeover tilt comes at a hard time for GKN, which in November ditched its incoming boss less than two months before he was due to take the top job as it warned over another hit in its troubled United States plant. This is before accounting for the previously announced substantial write-offs in the North American Aerospace business. The town's ironworks supplied rails to railways in the United Kingdom and overseas, making it the world's largest by 1845. Today the FTSE 250 company is valued at nearly £4.4bn.

Last August the firm acquired U.S. company Nortek for £2,2bn.

In 2012 Melrose bought utility metering firm Elster for £1.8bn and sold it three years later to Honeywell for £3.3bn.

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