Melrose offer rebuffed again as it goes hostile in bid for GKN

Turnaround specialist Melrose said on Wednesday that it has upped its offer, after GKN rejected its 405p a share proposal last week on the basis that it undervalued the company and its prospects. The new offer represents a premium of around 29% to the closing price of GKN's shares on 11 January, but this wasn't enough to entice GKN, which said the terms of the new offer are "effectively unchanged" from the previous one.

Under the terms of the deal, GKN shareholders would own around 57% of the enlarged group. Melrose said the acquisition would deliver "significantly greater benefits to the shareholders of GKN than GKN could otherwise achieve on its own". This comes after GKN said last week that it was planning on splitting its aerospace and automotive businesses.

Melrose chief executive Simon Peckham said: "Since our approach was announced, the Melrose share price has risen as the market digests the attractive opportunity our proposal represents. As a result the implied premium has grown from approximately 24% to approximately 32% since our approach.

"However, the real value uplift will come from merging the interests of the two sets of shareholders and creating a business valued at approximately £11 billion today, of which GKN holders will own the majority, including Nortek, our US business which is trading strongly. We are having discussions with shareholders about the potential for the merged business, which will be one of the largest companies in the UK."

GKN chief executive Anne Stevens said: "We believe GKN’s current owners should retain all the benefits of the clear upside potential in GKN, rather than handing almost half of this upside to Melrose and its shareholders. We have already stated that the terms of Melrose’s offer fundamentally undervalue the company and we are actively engaging with shareholders to explain how our transformation plan will provide value."

GKN advised its shareholders to take no action.

Olivetree Financial said the decision to go hostile is an aggressive one and shows that Melrose reckons it has the upper hand.

"Whilst GKN shareholders are now backstopped by this bid (albeit heavily denominated in Melrose shares), the benefits of this will be somewhat offset by Melrose’s actions showing that they genuinely perceive the value of GKN management support to be less than others think. The onus on GKN to either generate a value-creative alternative, or to extract a bump in exchange for its support has just stepped up a notch.

"With GKN trading 3.8% above the terms of the Melrose offer currently, the market is already speculating that Melrose will kiss this to win target backing, or less likely that GKN will pull a rabbit from the hat regarding its stand-alone valuation. The time pressure on GKN to present this strategy to the street has now fallen away a touch, of course the previous PUSU deadline on Melrose is now defunct - but the next move is still GKN’s. To defend itself, it will have to make this a compelling one."

At 1040 GMT, Melrose shares were down 1.7% to 230.40p while GKN was down 0.3% to 443.10p.