GKN rejects ‘unsolicited’ offer from Melrose

Shares in engineering giant GKN have rocketed 24 per cent after the firm revealed that it has rejected a £7billion takeover bid from turnaround specialist Melrose.

The company said today that it had rebuffed an ‘opportunistic’ and ‘unsolicited’ proposal from the manufacturing turnaround firm as it undervalued GKN.

The offer represented a 405p per share price, comprising 80 per cent in new Melrose shares and 20 per cent in cash.

Flying high: Shares in engineering giant GKN, which makes parts for Airbus, have rocketed 24% after the firm revealed that it has rejected a £7bn takeover bid from turnaround specialist Melrose

Flying high: Shares in engineering giant GKN, which makes parts for Airbus, have rocketed 24% after the firm revealed that it has rejected a £7bn takeover bid from turnaround specialist Melrose

Flying high: Shares in engineering giant GKN, which makes parts for Airbus, have rocketed 24% after the firm revealed that it has rejected a £7bn takeover bid from turnaround specialist Melrose

The takeover rules mean that Melrose must make a firm offer by February 9 or walk away from six months.

‘The board of GKN has considered the proposal together with its financial advisers… and has unanimously rejected it, having concluded that the proposal is entirely opportunistic and that the terms fundamentally undervalue the company and its prospects,’ GKN said in a statement.

‘In addition, the proposal would materially dilute the exposure of GKN shareholders to the meaningful upside opportunities that the board believes are present within the company.’

Liberal Democrat leader Vince Cable added his voice today, calling on Business Secretary Greg Clark to block the takeover.

‘GKN stands for long term investment in advanced manufacturing whereas Melrose are in the business of short-term financial engineering,’ he said.

Shares in GKN climbed to 413p in morning trading after the announcement.

Consequently, shares in Melrose also rose sharply, adding seven per cent to reach 229p.

These movements suggest investors expect further talks between the companies about a deal, and possibly a higher offer.  

The takeover tilt comes at a difficult time for GKN, which in November ditched its aerospace head Kevin Cummings less than two months before he was due to take over as chief executive from Nigel Stein as it warned over another hit in its troubled US plant.

Driving force: Shares in GKN, which manufactures parts for Mercedes, climbed to 413p in morning trading after the announcement

Driving force: Shares in GKN, which manufactures parts for Mercedes, climbed to 413p in morning trading after the announcement

Driving force: Shares in GKN, which manufactures parts for Mercedes, climbed to 413p in morning trading after the announcement

The firm has instead appointed non-executive director Anne Stevens as interim chief executive and today 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 and employs 56,000 people globally, also revealed last year that a review of its US aerospace plants had uncovered additional write-offs of between £80million and £130m.

It had previously expected to write off £15m on its Alabama facility, relating to ‘revised assumptions’ on programme inventory and receivables balances, which sparked a wider review across the division.

Today, it said that a new two-year strategy called Project Boost would significantly increase cash flow by cutting costs and expenditure along with tighter pricing control.

It also announced plans to split its aerospace and automotive divisions into separate companies, although the timing has not been confirmed.

Political intervention: Liberal Democrat leader Vince Cable added his voice today, calling on Business Secretary Greg Clark to block the takeover

Political intervention: Liberal Democrat leader Vince Cable added his voice today, calling on Business Secretary Greg Clark to block the takeover

Political intervention: Liberal Democrat leader Vince Cable added his voice today, calling on Business Secretary Greg Clark to block the takeover

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.

‘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,’ he said.

‘The money to be made from a split is likely to have been what drew turnaround specialist Melrose to the table in the first place.’

GKN added that it was trading in line with expectations. 

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