GKN rejects takeover from Melrose, to split in two
Using the closing share price of Melrose of 218 pence as of January 5, the business day prior to receipt of the proposal, the proposal implied an exchange ratio of 1.49 new Melrose shares for each issued and to be issued GKN share which would result in GKN shareholders holding approximately 57% of the enlarged company and Melrose shareholders holding 43% plus 81 pence in cash per GKN share.
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.
GKN commenced a wide-ranging review in 2017. This was necessary because, while sales have been growing, both profit margins and cash generation have been below expectations.
A new strategy has been developed to improve significantly performance in all of GKN’s businesses.
GKN is now creating differentiated product segments that will be classified as either core or non-core. There will be three different strategies for the core product segments – improve (e.g. Constant Velocity Joints), grow (e.g. Aero Engines) and develop (e.g. eDrive and Additive Manufacturing).
The Board has regularly reviewed GKN’s corporate structure. In recent months GKN has undertaken an intensive analysis of the economic benefits and costs (including the costs of pensions and tax) of separating the Aerospace and Automotive businesses.
In addition to Project Boost, the Board believes that shareholder value will be maximised by setting distinct strategic, operational and financial objectives for the businesses, with clear focus, accountability and better aligned incentive plans. ■