GKN rejects Melrose's new hostile £8bn bid

Engineering group and union urge shareholders not to accept ‘final offer’ amid calls for inquiry

Melrose increased its hostile takeover bid for GKN to £8bn on Monday, but the engineering multinational was joined by Britain’s biggest trade union in urging shareholders to reject the offer from a suitor its critics accuse of operating as an asset-stripper.

However, a sizeable investor in both companies indicated it would accept the improved cash and shares bid from Melrose, which was worth 442p a GKN share at the close of business on Monday, compared with the closing price of 424p. The previous Melrose offer was worth 416p a share.

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Christopher Miller, the Melrose chairman, said his company had little choice but to go direct to shareholders with the revised offer because the GKN board had rebuffed all recent attempts to engage in “constructive discussions”.

Miller accused GKN of engaging in a desperate defence by proposing last week to sell its automotive division to the US firm Dana for £4.4bn, and said it was a “hasty and ill-thought-through transaction” that would leave the remaining aerospace arm burdened with pension liabilities “inappropriate for the size of the underlying business”.

GKN, one of Britain’s oldest engineering businesses which can trace its roots back to 1759, has been fighting off Melrose’s approaches since mid-January, when it rejected an initial £7.4bn bid. It accused Melrose of having a sshort-term approach that would damage its long term prospects.

Hours later GKN said Melrose’s revised bid “fundamentally undervalues GKN”. The company said it already had approaches for its aerospace operations that were above the current share price, but added that it had rejected them because of the potential it saw in the unit that makes components for Airbus.

GKN said it believed the company was worth more than 500p a share. “Melrose is offering a premium lower than any relevant FTSE 100 takeover in the last 10 years, and substantially lower than any of its previous acquisitions,” said Mike Turner, the GKN chairman.

Steve Turner, the assistant general secretary of Unite, which has been campaigning against Melrose, said the union was worried for the long-term future of jobs at GKN, which employs 58,000 worldwide and 6,000 in the UK.

“Melrose’s self-professed short-term approach of breaking companies up and selling parts quickly on, raises major concerns for UK defence interests and works against the long-term projects that GKN Aerospace is involved in,” he said.

Both Conservative and Labour MPs have raised concerns about the Melrose bid, and called on Greg Clark, the business secretary, to refer the bid to a full inquiry on national security grounds. Melrose, however, said the grounds for intervention were thin given GKN was not one of the 100 largest suppliers to the British armed forces.

Jack Dromey, Labour MP for Birmingham Erdington, said there was a “strong all-party view that this takeover was not in the industrial interests of Britain or its manufacturing base”. He said MPs from all parties had met Clark and were heard sympathetically.

Gavin Williamson, the defence secretary, has previously written to Clark to say he had concerns given that GKN was a supplier of components for the F-35 fighter jet, the A400M military transport aircraft and the Ajax armoured vehicle.

But one shareholder said it was sympathetic to Melrose. David Cumming, the chief investment officer of equities at Aviva Investors, which owns almost 1.2% of GKN and 5.4% of Melrose, said: “We favour Melrose’s proposed measured execution of value rather than GKN’s reactive review of its business structure.

“Consequently, we believe the interests of shareholders in both companies are best served by accepting Melrose’s raised bid.”

Melrose said on Friday it had received acceptances for 5.76% of GKN’s shares. Under the new offer, GKN investors would receive 81p in cash for every one of its shares they hold, plus 1.69 new Melrose shares. Melrose has kept the cash part of the deal the same but raised the equity part from 1.49 new Melrose shares.

GKN had been left weakened by profit warnings in October and November, caused by problems in its aerospace division.

Contributors

Dan Sabbagh and Julia Kollewe

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