Melrose makes promises in last-ditch pitch for GKN

Bloomberg

Melrose Industries Plc made a last-ditch effort to allay concerns over whether it would be the right owner of GKN Plc as the battle for the UK engineering company takes on a political dimension a day before its 8 billion-pound ($11 billion) hostile offer runs out.
“Melrose fully stands behind its plan to work for the improvement of not only GKN, but the UK economy as well,” the Birmingham, England-based takeover specialist said in a statement on Wednesday. In laying out a long, detailed list of promises on GKN, including a pledge to keep its aerospace business for five years, Melrose took a further step and said it won’t sell or reorganise itself during the period.
A deadline for shareholders to accept Melrose’s unsolicited offer for GKN expires on Thursday. The bid is in opposition to the Redditch, England-based manufacturer’s own plan to break itself up by selling its automotive business to U.S. partsmaker Dana Inc.
The conflict is the largest UK-only hostile-takeover tussle in a decade, with the level of acrimony rising daily as each side lobs accusations and counterarguments about the two vastly different proposals for the company’s future.
GKN shares fell 0.5 percent to 428.2 pence in London. The company’s market value is 7.36 billion pounds, or 8 percent below the figure for the Melrose offer.
UK politicians and labour groups have waded into the tug-of-war with doubts about Melrose’s expertise and
portrayals of the firm as an asset-stripper in disguise. Planemaker Airbus SE has also warned that it may not continue as a customer.
On Tuesday the dispute reached the UK Parliament, where Business Secretary Greg Clark said Melrose needed to spell out its intentions for
ownership of the aerospace business, without which the government “would have been in the dark.”
Asked whether he would block a Melrose takeover for national-security reasons, Clark said he’d decide on whether there are “grounds for an intervention” only after hearing from the Ministry of Defence.
“I will make a decision on that basis once the bid is closed,” he said.
Melrose responded with a legally binding guarantee preventing it from selling the aerospace division, which includes politically sensitive defense activities, until April 1, 2023. It has also promised to keep headquarters, a stock listing and a majority of directors residing in the UK as well as offering pledges on research and development spending.
In a further twist on Wednesday, the suitor said it won’t “undertake a reorganisation of the Melrose Group, the effect of which is for Melrose to be absorbed into another entity or otherwise cease to exist as a legal entity,” according to the statement.
That pledge contains caveats in the event of an offer for
the company.
For its part, GKN’s proposal is for an immediate breakup, which would leave current management in control of the remaining aerospace group. Maumee, Ohio-based Dana on Monday increased the cash portion of its $6.1 billion bid for GKN’s Driveline unit by about $142 million.
The US manufacturer said that it’s offering superior value with a greater upside and lower execution risk.
Melrose countered on Wednesday that its terms are “clearly superior both in value and deliverability.”