Melrose raises GKN offer to £8.1bn
Turnaround specialist Melrose has upped the stakes in its hostile takeover of engineering group GKN by increasing its offer for the Redditch-based group.
Alcester-based Melrose had bid £7.4bn to acquire the business but in a letter to GKN shareholders today, the company said it was increasing this offer to a final £8.1bn.
The move is seen as last-ditch effort to convince GKN shareholders that it is the best home for the group and to undermine a £4.4bn deal announced by GKN on Friday which would see its Driveline division subsumed by US collaborator Dana.
The terms of the Melrose bid are based on an offer of 467p for each GKN share, a move which values GKN at £8.1bn.
While a significant increase on its previous offer – and a £1.1bn increase on its first bid – an appearance by Melrose directors before the Business, Energy and Industrial Strategy select committee last week suggested the bid is still well within Melrose’s capabilities.
The company told MPs when they gave evidence last week that Melrose had secured a £4.5bn banking facility to finance its plans. Of this, it said it would set aside £1bn to act as headroom for the proposed takeover.
Further highlights of the Melrose bid were that GKN shareholders would own 60% of Melrose (80% of the Melrose offer is in the form of shares) and receive £1.4bn in cash.
The offer represents an immediate premium of 43%.
Melrose said all its attempts to engage in constructive discussions had been refused by the GKN board and that in its opinion, the Dana transaction was prejudicial to GKN’s UK shareholders and represented a bad deal for them.
Melrose has set a deadline for 1pm on March 29 for acceptances of its offer, which it has said will not be increased further under any circumstances.
In his letter to the GKN shareholders, Melrose chairman Christopher Miller said: “Your Board is attempting a hasty fire-sale of GKN businesses before they have been given a chance to reach their potential and with damaging consequences, we believe, for all stakeholders.
“The potential transaction with Dana, if it is allowed to go ahead in the last quarter of this year, would leave you with a minority stake in a foreign listed group run by a Dana management team based in Ohio.
“Many of you may not be able to hold the shares being offered by Dana as part of the consideration as they will not be listed in the UK.”
He said it was surprising that the GKN Board would recommend such a transaction knowing that it was likely to require a forced sale of Dana shares, a fact that will be anticipated by the US markets.
“The outcome of the disposals would leave behind a GKN Aerospace business burdened by a disproportionate, and very substantial, amount of gross pension liabilities, inappropriate for the size of the underlying business. We believe this transaction poses real risks for GKN pensioners and employees in both Driveline and Aerospace and would be a bad outcome for UK Industrial Strategy,” he added.
In a rebuttal of Melrose’s approach (made before it increased its offer) and to underline the rationale behind the disposal of Driveline, GKN had sent out its own letter to shareholders.
In it, chairman Mike Turner said: “There are three core components of our strategy to maximise shareholder value. The first is unlocking the value of our world class Aerospace business through the creation of a standalone company, which we expect will positively re-rate in line with peers. Combined with improvements from Project Boost, we aim to create a business with world class financial performance.
“The second is the combination of GKN Driveline and Dana, bringing together two highly complementary businesses and creating a global leader in driveline. Your Board believes that the proposed combination is on highly attractive terms for our shareholders. The transaction involves Dana taking on a significant proportion of our UK pension scheme liabilities. This has allowed us to agree a deficit elimination plan with the trustees of our UK pension schemes. Once implemented, this plan is expected to enable GKN Aerospace to operate without any UK pension deficit.
“The third is returning up to £2.5bn in cash to our shareholders over the next three years, a significant part of which is expected to be delivered in the next 12 to 18 months. This cash will primarily come from the divestment of Powder Metallurgy and other non-core businesses, together with the net cash proceeds received from the combination of GKN Driveline and Dana.”
