GKN to accelerate the demerger of automotive and aerospace divisions

Engineering group GKN is set to advance plans to split off its two main divisions into separate listed companies as it looks to stave off takeover approaches by turnaround specialist Melrose.

The Redditch-based group is currently locked in a bitter dispute with Melrose over a possible takeover. Alcester-based Melrose has offered £7.4bn for GKN and told the group’s shareholders that it can add value to the business should it become part of its portfolio.

A key factor within the Melrose strategy is a proposed separation of the Aerospace and Automotive divisions of GKN – which are the group’s most profitable operations – into two separate companies.

GKN has urged its shareholders to take no action on the Melrose approach, claiming it woefully undervalues the business.

In a further attempt to thwart its potential suitor, GKN today used the release of its full year results to reveal more about its own plans for the future of the business.

A wholesale review of the operation, dubbed Project Boost, recommends the split of the Aerospace and Driveline (Automotive) arms into two separate listed companies, with plans to complete the demerger by the middle of 2019.

Project Boost then suggests that the group will go on to generate £340m of recurring cash benefits from the end of 2020.

As an added incentive for shareholders to remain loyal, it is also targeting the return of up to £2.5bn to shareholders over the next three years – ironically, Melrose made a similar move when it sold off its Elster operation for £3.3bn in 2015, returning £2.4bn to its shareholders.

GKN is also proposing tough new trading margins for 2020, with aerospace set at at least 14%, Driveline 9.5% and the remainder of the group, 11%.

Statutory results for the year ended December 31, 2017 show a 10% increase in group revenues to £9,671m (2016: £8,822m), with pre-tax profit rising 125% to £658m (2016: £292m) – although this has a lot to do with the higher valuation of foreign exchange contracts.

Nevertheless, new chief executive Anne Stevens was in bullish mood.

Making no mention of the Melrose approach, she said: “GKN has fantastic businesses which have grown organically above our key markets, demonstrating once again our strong positions and leading technology.

“However, as I set out two weeks ago, we now need to change our emphasis and ensure that those orders deliver world class financial performance with a renewed focus on strong margins and cash generation.

“With Project Boost, I have laid out how we plan to achieve this, through detailed product segment strategies and an emphasis on manufacturing and functional excellence. We are excited about delivering these plans.”