Engineering giant GKN rejects £7bn takeover bid from Melrose

Engineering giant GKN rejects £7bn takeover bid from Melrose

The offer represented a price of 405p per share, comprising 80% in new Melrose shares and 20% in cash.

The FTSE 100 firm's board unanimously rejected a bid from Melrose received 8 January that valued the company at 405p per share, a 24 per cent premium on its 5 January closing price. Smiths Group (LON:SMIN) is also one of today's most notable FTSE 100 risers after updating investors on the impact from the tax reform on the other side of the Atlantic.

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 ended up with a 57% stake in the combined business.

GKN also announced that the Board believes separating the Aerospace and Automotive businesses will help maximise shareholder value by setting distinct strategic, operational and financial objectives for each business.

GKN said: "The proposal is entirely opportunistic and that the terms fundamentally undervalue the company and its prospects".

GKN employs 58,000 people across 30 countries in aerospace and automotive engineering.

Melrose must now make a firm offer for GKN or withdraw its bid by 9 February.

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".

"GKN has made up for years of lumbering progress in a flash", said Nicholas Hyett, equity analyst at Hargreaves Lansdown.

As part of its two-year revamp, aptly titled "Project Boost", it will differentiate product segments into core or non-core, which will each have different capital expenditure targets and expectations for growth, margin improvement, cash generation and return on investment. 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.

A brief trading statement accompanying the announcement confirmed that the group continues to expect profit before tax for the year to be slightly ahead of last year's £678m.

Anne Stevens, previously interim CEO, has agreed to take on the position of CEO with immediate effect. That write-off, associated with GKN's USA aerospace business, will be "nearer the upper end" of an £80-130 million range, GKN indicates.

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