UK’s GKN rejects $9.5bn Melrose bid

Bloomberg

GKN Plc rejected an unsolicited approach from Melrose Industries Plc and said it will split itself in two rather than accept a $9.5 billion takeover offer that it says undervalues the UK maker of aerospace and automotive components.
GKN shares surged as much as 28 percent to an all-time high after the Redditch, England-based company, a key supplier to Airbus SE and Boeing Co., said that it turned down the 405 pence-a-share offer from Melrose, a UK investment firm that specialises in turnarounds. Melrose said separately that it remains interested in a buyout.
The board and its advisers “concluded that the proposal is entirely opportunistic and that the terms fundamentally undervalue the company and its prospects,” GKN said.
The offer comes at a delicate time for GKN, which said in November it was firing its incoming chief executive officer before he even started amid mounting write-offs related to a troubled aerospace plant in Alabama. Compounding the upheaval, the UK decision to leave the European Union has clouded the outlook for the country’s autoparts manufacturers because of their reliance on open trade.
In rejecting Melrose’s approach, GKN said interim CEO Anne Stevens, in the job since Jan. 1, will keep the position permanently after taking over an “ongoing and wide-ranging” review of all businesses.
The former Ford Motor Co. executive, 69 will oversee the planned split, creating two companies with “distinct investment profiles and capital allocation policies,” it said.
“We believe Melrose would be able to substantially improve the operations and we suspect shareholders would support an increased bid,” Liberum analyst Ben Bourne said in a note to clients.
Melrose said its cash-and-share offer is aimed at reversing GKN management’s history of “not delivering on margin targets,” and improve its businesses before a breakup, enabling them to exceed current profitability goals.
A potential offer would take the form of 80 percent stock and 20 percent cash, and current GKN owners would end up with about 57 percent of the enlarged group, Melrose said.