Wednesday, 15 August, 2018

GKN shares jump 26% after announcing rejected bid from Melrose

GKN shares took off on the news GKN shares took off on the news
Kristopher Love | 14 January, 2018, 14:00

United Kingdom aerostructures manufacturer GKN has rejected a takeover bid from turnaround specialist Melrose Industries and disclosed a plan to separate its aerospace and automotive activities as part of a two-year business-improvement plan.

A bid battle is now likely as Melrose, which specialises in buying struggling businesses, turning them round and selling them at a profit with the proceeds given back to shareholders, will pursue its interest despite GKN's opposition.

GKN says Melrose's "preliminary and unsolicited" offer to purchase the entire shareholding was "entirely opportunistic", and that the terms "fundamentally undervalue the company and its prospects".

GKN also announced that the Board believes separating the Aerospace and Automotive businesses will help maximise shareholder value by setting distinct strategic, operational and financial objectives for each business.

GKN is located in over 30 countries, and includes manufacturing operations in East Cowes on the Isle of Wight.

Melrose, by contrast, says the deal would deliver "significant operational and commercial benefits" and reverse "a history of existing GKN management not delivering on margin target".

GKN shares jump 26% after announcing rejected bid from Melrose

It also set out her plans to separate GKN's aerospace and automotive divisions to improve profitability. But Melrose shares have subsequently climbed 7%, lifting the value of the offer to 422p a share.

The FTSE 100 firm's board unanimously rejected a bid from Melrose received 8 January that valued the company at 405p per share, a 24 per cent premium on its 5 January closing price.

Hyett said: "A takeover offer, subsequent rejection, new CEO, transformation strategy, trading update and planned separation of the business all in one go - it's hard to describe GKN as a Mondeo now!" According UK takeover rules, Melrose now can make a firm offer by February 9 or walk away for six months.

The firm itself undertook a "wide-ranging review" of its business a year ago, as profit margins and cash generation were stuck "below expectations". Cummings had been lined up to take over from veteran CEO Nigel Stein but the company announced large write-off concerning working capital across aerospace plants in North America.

Accompanying this decision is a two year initiative (Project Boost) to improve cash and profit in both parts of the business. 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.

After becoming interim chief executive in late 2017, Anne Stevens has been permanently appointed to the post. Today the FTSE 250 company is valued at nearly £4.4bn.