GKN rejects new hostile £8.1bn Melrose bid

Engineering giant GKN has rejected a new bid from turnaround specialist Melrose, saying the offer continues to "fundamentally undervalue" the firm.

Earlier, Melrose issued a "final" cash and shares offer for GKN, which it said was worth 467p a share, valuing the company at £8.1bn.

However, GKN said Melrose's offer was actually worth 445.5p a share.

GKN makes parts for Boeing 737 jets and Black Hawk helicopters, as well as parts for Volkswagen and Ford cars.

The takeover battle has entered the political arena, with some MPs calling for the bid to be blocked.

GKN has fought hard against the bid, offering to give back £2.5bn to shareholders and agreeing to merge its car unit with US company Dana.

'Final' offer

GKN employs more than 59,000 people, 6,000 in the UK alone. It became a takeover target after it issued profit warnings late last year.

Melrose said all recent attempts to engage in "constructive discussions" with GKN had been blocked. It added that its latest offer was "final" and would "not be increased under any circumstances".

Under the new offer, GKN investors would receive 81p in cash and 1.69 new Melrose shares for GKN share they held.

It has also raised the amount GKN shareholders would own in Melrose following the deal from 57% to 60%.

However, GKN says a fall in the Melrose share price has reduced the value of the cash and shares offer.

News of GKN's latest rejection saw its share price close down 2.5% at 424p, while shares in Melrose finished 5% lower at 213.5p.

Rebecca O'Keeffe, head of investment at Interactive Investor, said: "The muted market reaction... is the strongest indication yet that Melrose might not get its way.

"The robust efforts GKN has taken to protect itself from the hostile bid, including the proposed disposal of its Driveline business to Dana, combined with the comments from Melrose that their offer will 'not be increased under any circumstances' is leading investors to conclude that GKN has won this battle, at least for now."

'Measured' approach

However, one leading investor said he backed the Melrose deal.

David Cumming, chief investment officer for equities at Aviva Investors, said: "As shareholders in both Melrose and GKN, we favour Melrose's proposed measured execution of value rather than GKN's reactive review of its business structure.

"Consequently, we believe the interests of shareholders in both companies are best served by accepting Melrose's raised bid."

Analysis: By Simon Jack, business editor

Many in the city thought a bit of extra money would be enough to convince GKN shareholders to trade in the current management for that of Melrose, which has a track record of increasing the value of the companies it buys, improve and then sell on.

An influential investor, David Cumming, of Aviva, says he backs the Melrose bid. But this is an unusual battle - two UK firms, both planning to break a company up, which find themselves in a public tussle with MPs shouting from the sidelines.

Because GKN has some defence contracts in the UK and in the US, the business secretary may have the power to block the takeover. Although, given it is one UK company buying another, he would much rather let the GKN shareholders sort it out for themselves and the ball is now in their court.

Having made a final offer Melrose cannot offer any more but that doesn't mean this battle is over.

Melrose is a firm that specialises in buying up industrial companies it believes are undervalued and restructuring them before selling them on.

The takeover approach has also raised fears among unions and MPs that GKN, one of the UK's largest industrial firms, will be broken up and sold to overseas owners.

The Pensions Regulator has warned that the Melrose takeover could affect the company's ability to fund its pension scheme.

Last week, a cross-party group of MPs wrote to the Business Secretary, Greg Clark, saying the Melrose takeover should be blocked.

GKN shareholders have until 29 March to decide whether or not to accept Melrose's offer.

'Fire sale'

Melrose called GKN's attempts to fend off the approach a "hasty fire sale of GKN businesses before they have reached their potential".

In its offer statement, Melrose chairman Christopher Miller appealed to GKN's shareholders.

"On the one hand you can join us on a journey of value creation by investing in a UK listed manufacturing powerhouse worth over £10bn today and receiving £1.4bn of cash," he said.

"On the other hand 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."

On Friday, GKN agreed to merge its Driveline division with US auto-engineer Dana in a deal worth $6.1bn (£4.4bn). The deal would see GKN shareholders end up with a 47.25% stake in the enlarged, US-listed group.

However, Mr Miller said the proposed deal was likely to involve a "lengthy and uncertain completion process" with competition authorities, and added that some GKN investors would not be able to hold the shares as they would not be listed in the UK.

A brief history of GKN

Founded in 1759 as an ironworks in South Wales

Involved in aerospace, automotive, materials and manufacturing engineering

Operates in 30 countries with more than 59,000 employees

Employs 6,000 staff in the UK, mostly in aerospace and automotive technology

Ten UK sites, including Bristol, Cowes, Luton, Portsmouth, Birmingham and Telford.

Chief executive Anne Stephens took over in January