Engineering giant GKN rejects £7bn takeover bid from Melrose

GKN has rejected an unsolicited offer from rival Melrose
Credit
Sean Pollock

Shares in the company were up almost 24 per cent at 412.2p at the time of writing.

GKN says Melrose's "preliminary and unsolicited" offer to purchase the entire shareholding was "entirely opportunistic", and that the terms "fundamentally undervalue the company and its prospects".

The FTSE 100 firm's board unanimously rejected a bid from Melrose received 8 January that valued the company at 405p per share, a 24 per cent premium on its 5 January closing price.

The proposal included a breakdown of the funding of the deal, whereby 80% would be in new Melrose shares and 20% in cash.

Simpson Thacher is representing manufacturing turnaround specialist Melrose, with London M&A partners Adam Signy and Ben Spiers leading its team. It expects to write down between £80m and £130m as the value of stocks at the division had been overestimated. "After a successful turnaround of The Ford Motor Company's businesses in Mexico, Canada and South America, she was appointed as chief operating officer for the Americas where she developed the transformation plan for Ford's U.S. business". According UK takeover rules, Melrose now can make a firm offer by February 9 or walk away for six months.

The group ousted Kevin Cummings, GKN's aerospace head, who was due to take over from incumbent chief executive Nigel Stein in January.

Instead, GKN said it would break itself up, separating the aerospace and automotive divisions into two companies under newly-confirmed chief executive Anne Stevens and launching a new two-year revamp plan.

The BBC quoted Nicholas Hyett, an analyst at Hargreaves Lansdown, as commenting that the split had been "on the cards for years" because there was little crossover between the two businesses.

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

GKN said current trading was in line with expectations, with 2017 profits expected to be slightly ahead of the 2016 figure of £678m before the USA write-off.

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