Melrose to pitch £7 billion takeover to GKN shareholders in aggressive approach
Melrose is set to portray GKN has “an under-managed organisation without focus”.
Melrose is ramping up efforts to secure a £7 billion takeover of GKN this week as it meets shareholders in the engineering firm to garner support for the deal.
The company, which specialises in buying up and rejuvenating manufacturers, will portray GKN has “an under-managed organisation without focus” and sub-par shareholder returns, but offers “huge scope for improvement”.
Slides prepared for its investor meetings also plays up Melrose’s own informal offer of 405p per share, comprising 80% in new Melrose shares and 20% in cash, saying GKN shareholders would own around 57% of the firm and become “major participants in potential future value creation”.
The offer represents a 24% premium over GKN’s closing price on January 5, the last business day before Melrose made its first takeover approach, and a 30% premium on the average share price since GKN released its trading update on October 13.
The shareholder meetings are an aggressive move by Melrose, which saw its £7 billion offer rejected last week by GKN’s board on grounds that it undervalued the firm.
Melrose chief executive Simon Peckham said: “We are aiming to put into sharp focus the options for GKN shareholders.”
“They can elect to sell in the market right now for a substantial premium to Friday’s opening price which itself has increased following a rise in the price of Melrose’s shares.
“Or they can choose to combine their business with ours and have the majority share in what we are confident will be a business capable of significant value enhancement.
“This is in stark contrast to a break up of the business by a GKN management team which has consistently underperformed or a hasty possible sale of parts or all of the business to third parties who don’t share our objectives of creating long term value for shareholders.”
GKN’s new chief executive Anne Stevens as well as the firm’s finance director Jos Sclater are holding their own meetings with shareholders this week in order to discuss the company’s transformation plan, which is aimed at improving cash generation and profit margins.
But the Melrose bid is also likely to be addressed.
“GKN is a strong global business with competitive positions in attractive markets directly supplying the world’s biggest automotive and aerospace manufacturers,” GKN said.
“Melrose’s opportunistic offer to shareholders fundamentally undervalues our company and its prospects and would deprive our shareholders of the full benefits of the value that GKN intends to deliver.”
But Melrose said GKN has underperformed the total shareholder return of the FTSE 350 by around 26% since 2003, while Melrose is currently the third best company in terms of shareholder return over the same period.
It also highlighted a “history of missed margin targets” at GKN since 2011.
“Melrose intends to significantly improve GKN’s businesses as opposed to a hasty break up”, the turnaround specialist said in a statement.
The takeover tilt comes at a difficult 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 US plant.
The firm has instead appointed non-executive director Anne Stevens as interim chief executive and on Friday confirmed her as the company’s permanent boss.
GKN, which makes wing tips for Airbus and parts for car giants including Mercedes and Jaguar Land Rover, revealed last year that a review of its US aerospace plants had uncovered additional write-offs of between £80 million and £130 million.
It had previously expected to write off £15 million on its Alabama facility, relating to “revised assumptions” on programme inventory and receivables balances, which sparked a wider review across the division.
Melrose has until February 9 to make a firm offer or drop its bid for GKN.
GKN shares were at the top of the FTSE 100 in afternoon trading, up more than 4.6% or 19.4p at 439.4p.