Tuesday, 16 January, 2018

GKN plots break-up after rejecting £7bn takeover offer

GKN has rejected an unsolicited offer from rival Melrose
Credit
Sean Pollock GKN has rejected an unsolicited offer from rival Melrose Credit Sean Pollock
Patty Aguilar | 13 January, 2018, 02:40

GKN, which makes plane and auto parts, said on Friday that it had turned down an offer from Melrose on 8 January that valued the company at 405 pence per share.

Shares in GKN were up 26% at 420.00 pence on the news, valuing the company at GBP7.26 billion, and having hit an all-time high of 425.00p earlier in Friday's session.

Meantime, GKN believes that value for its shareholders will be "maximised" by its separation of its aerospace and automotive divisions in order to set "distinct strategic, operational and financial objectives for the [two] businesses, with clear focus, accountability and better-aligned incentive plans". The offer would have resulted GKN shareholders owning 57% of the combined company and and Melrose shareholders holding 43%.

It added that "the proposal would materially dilute the exposure of GKN shareholders to the meaningful upside opportunities that the Board believes are present within the company".

The GKN board described the Melrose offer as "entirely opportunistic" adding that "the terms fundamentally undervalue the Company". Takeover rules mean it must make a firm offer by 9 February or walk away for six months.

GKN also announced it intends to separate the Aerospace and Automotive units, with further details to be determined at a later date. GKN acknowledges that profit margins and cash generation have been "below expectations", despite a rise in sales.

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Nicholas Hyett, an analyst at Hargreaves Lansdown, said the split had been "on the cards for years" because there was little crossover between the two businesses.

Stevens, the former Chairman and CEO of United States alloys manufacturer Carpenter Technology Corp, became interim chief executive of the company earlier in January following the retirement of Nigel Stein.

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.

Accompanying this decision is a two year initiative (Project Boost) to improve cash and profit in both parts of the business.

'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'.

Cummings had been lined up to take over from veteran CEO Nigel Stein but the company announced large write-off concerning working capital across aerospace plants in North America.

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