GKN attacks Melrose for derisory offer
Engineering giant GKN has again rebutted approaches by potential suitor Melrose, claiming the bid offer for the company is “entirely opportunistic” and fundamentally undervalues the business.
Melrose formally submitted its bid offer of £7.4bn yesterday, accompanied by a letter from the chairman of Melrose to GKN shareholders outlining why they should accept the offer.
The offer, consisting of 337.3p per share in Melrose shares and 81p in cash, represents a total of 418.3p per GKN share.
It has also pledged to invest £150m into the GKN pension scheme within 12 months of the completion of a takeover.
The takeover would likely involve a splitting up of the Redditch-based group, with its automotive and aerospace operations becoming separate businesses.
Responding. GKN said its board continued to view the offer as entirely opportunistic and believed its terms fundamentally undervalued GKN and its prospects.
In particular, the board said it believed that:
• GKN had strong businesses which offered considerable upside potential – by rejecting the offer, shareholders would see 100% of the value created; with Melrose, it said they would lose over 40% of this upside.
• GKN had a new leadership team and strategy to deliver a step-change in profit margins and cash generation, specifically through GKN’s transformation plan ‘Project Boost’, which focuses on the 4Ps of pricing, procurement, process and productivity, as well as fixed costs and capital allocation.
• Melrose’s stated premium of approximately 28% over the closing share price of GKN on January 5, 2018 was a fake premium and misleading. It said Melrose was proposing to fund over 80% of the offer consideration in shares and GKN’s shareholders would themselves fund the majority of the premium. In addition, it said GKN’s strong balance sheet was effectively funding the vast majority of the 81p per share in cash.
• Melrose is not the right owner for GKN. It lacks experience in relevant high technology businesses and of investing for the long-term. GKN is a much larger and more complex business than anything acquired by Melrose in the past. In addition, Melrose has very limited experience at board level of managing Tier 1 Aerospace and Automotive suppliers.
The board said it would be writing to shareholders recommending they reject the offer.
Anne Stevens, chief executive, GKN, said: “This offer is derisory. Melrose is trying to buy GKN on the cheap and with GKN’s own money, just at the point when our company is beginning to reap the benefits of its long-term investments.
“GKN’s new leadership team is committed to maximising shareholder value. We are excited about presenting ‘Project Boost’ and our wider transformation plan to shareholders in the next two weeks. We will show how we expect to deliver a step-change in operational performance and financial returns, based on real engineering not financial engineering. We remain committed to separation at the right time.
“GKN’s shareholders should retain 100% of these benefits, rather than handing almost half of them to Melrose’s management and shareholders.”
