GKN reject takeover bid that values the company at £7bn

A man walks under an electronic information board at the London Stock Exchange in the City of London

A man walks under an electronic information board at the London Stock Exchange in the City of London

Slaughter and May and Simpson Thacher & Bartlett have won lead roles as FTSE 100 engineering business GKN rejects a £7bn bid from Melrose.

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.

Attempted #takeover of leading UK #Engineering @GKN_plc by asset stripper melrose.

Its board, in tandem with financial advisers Gleacher Shacklock, JP Morgan Cazenove and UBS, "unanimously rejected" the proposal, which it deemed "entirely opportunistic" and to "fundamentally undervalue" the company and its prospects. "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 GKN board has rejected an offer from industrial turnaround specialist Melrose.

The company's autos unit, which makes drivetrain components, accounts for nearly half of sales versus just over a third from aerospace, though the latter generates more profit at 44 percent of the total. The biggest factory, in St Louis in Missouri, makes air frames for F-15 and F/A-18 fighter jets.

Also included in the statement issued today reveals plans to split the aerospace and automotive divisions into separate companies, and that Anne Stevens, now Interim Chief Executive, agreeing to become the Group's new Chief Executive with immediate effect. Now Stevens, a former senior executive at Ford, has been handed the job permanently.

Instead, the firm confirmed in a statement on Friday it had made a decision to split out the automotive and aerospace into two separate companies as part of a two-year "transformation programme", ending months of speculation over the firm's future.

Melrose has until 9 February to either make a firm bid or walk away. 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.

The firm also said its fourth quarter trading was in line with expectations and it therefore continues to expect 2017 management profit before tax to be slightly ahead of 2016's £678mln outcome before the additional working capital write-off in North American Aerospace announced on 16 November 2017. "What it hasn't done is generate enough cash from those market positions", one person familiar with the company said.

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