GKN urges shareholders to reject 'derisory' offer as Melrose outlines terms

Turnaround specialist Melrose Industries outlined the formal terms of its £7.4bn offer for GKN on Thursday, promising to simplify and declutter the business, but GKN responded by urging its shareholders to reject the “derisory” offer.

Melrose chairman Christopher Miller said that together with the 81p in cash, Melrose’s offer represents a total value of 418.3p per share, which is the highest price that GKN has ever traded in the past 10 years.

Miller pointed out that since it approached the company, GKN’s share price has risen 30% to 422.8p, while the Melrose share price has increased to 226.4p from 217.6p. He said this was an early indicator of the value of the enlarged group.

GKN stood firm, however, noting that the terms of the offer were unchanged from the announcement on 17 January and that it continues to view the bid as “entirely opportunistic”, fundamentally undervaluing the group and its prospects.

GKN argued that by rejecting the offer, shareholders would see 100% of the value created, while accepting it would see them lose 40% of this upside. It also said that Melrose was “not the right owner” for GKN as it lacks experience in relevant high technology businesses.

Chief executive Anne Stevens said: “Melrose is trying to buy GKN on the cheap and with GKN’s own money, just at the point when our company is beginning to reap the benefits of its long-term investments.

“GKN’s new leadership team is committed to maximising shareholder value. We are excited about presenting ‘Project Boost’ and our wider transformation plan to shareholders in the next two weeks. We will show how we expect to deliver a step-change in operational performance and financial returns, based on real engineering not financial engineering. We remain committed to separation at the right time.”

Miller said in the offer document that the team at Melrose can bring about “a transformation of GKN to unlock its full potential for the benefit of shareholders, employees, pensioners and customers alike”.

“We will replicate our proven approach by supporting GKN's operational management to transform, invest in and grow their businesses. We consider a change of control is a vital first step needed to allow for this transformation.

“We expect to re-energise and re-purpose GKN's operations to enable them to exceed GKN's own top-end group trading margin target of 10%. We believe that we can deliver significantly greater benefits to the shareholders of GKN than GKN could otherwise achieve on its own.”

Melrose said it has already identified several immediate actions which it expects to implement. These include head office restructuring and consequent simplification of the management structure; change of culture to focus on performance and reduced cost base; focus on profitability, not sales; investment in operations to produce return rather than growth only; return management focus back to the business by changing incentives and ensuring targets are delivered; and fast economic-based decision making to create a speedy, flat and non-bureaucratic organisation.

Miller also reiterated Melrose’s belief that a “hasty separation” of GKN’s automotive and aerospace businesses was not a good idea. “We strongly believe that both businesses need investment and improvement and that any actions to immediately separate the businesses in preparation for a sale of one or the other would be value destructive.”

At 0950 GMT, GKN shares were up 1.1% to 427.30p, while Melrose was up 0.5 to 227.60p.