GKN shares jump 26% after announcing rejected bid from Melrose

GKN has rejected an unsolicited offer from rival Melrose
Credit
Sean Pollock

GKN, which makes plane and auto parts, said on Friday that it had turned down an offer from Melrose on 8 January that valued the company at 405 pence per share. Shares opened more than 20% higher at 396p and continued rising Friday morning, hitting 420p, the highest its shares have traded since August 2007.

GKN said that it was accelerating plans to demerge its £4.2 billion annual revenue automotive business from its £3.4 billion aerospace operations after the unsolicited £7 billion takeover proposal from Melrose, a specialist in buying troubled engineering firms, shaking them up and selling them on again. GKN shareholders would have held around 57 per cent of the combined group.

"In addition, the Proposal would materially dilute the exposure of GKN shareholders to the meaningful upside opportunities that the Board believes are present within the Company".

The Board of GKN has considered the Proposal together with its financial advisers, Gleacher Shacklock, J.P. Morgan Cazenove and UBS Limited, and has unanimously rejected it, having concluded that the Proposal is entirely opportunistic and that the terms fundamentally undervalue the Company and its prospects. Takeover rules mean it must make a firm offer by 9 February or walk away for six months. "The timing of the separation will be determined by the need to maximise the economic benefits and minimise the costs associated with separation". GKN acknowledges that profit margins and cash generation have been "below expectations", despite a rise in sales. The company also warned on profits after uncovering problems at its aerospace division.

Kevin Cummings had originally been due to take up the role on 1 January, but in November the company announced it was looking for "alternative leadership".


On Friday, it said a new two-year strategy called Project Boost would significantly increase cash flow by cutting costs and expenditure along with tighter pricing control.

Nicholas Hyett, an analyst at Hargreaves Lansdown, said the split had been "on the cards for years" because there was little crossover between the two businesses.

Following fourth-quarter trading "in line with expectations", GKN foresees a full-year pre-tax profit "slightly ahead" of the £678 million recorded in 2016.

The engineering group also announced the appointment of interim boss Anne Stevens as the group's permanent chief executive. This is before accounting for the previously announced substantial write-offs in the North American Aerospace business.

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