Tuesday, 23 January, 2018

GKN shares soar on Melrose bid, plans to separate in two

The STOXX is also set to end the week little changed GKN - Offer rejected, Automotive and Aerospace to separate
Lucia Summers | 14 January, 2018, 14:05

An opportunistic takeover bid for GKN has smoked out plans for one of the biggest demergers in British industrial history.

A bid battle is now likely as Melrose, which specialises in buying struggling businesses, turning them round and selling them at a profit with the proceeds given back to shareholders, will pursue its interest despite GKN's opposition.

Instead, the firm confirmed in a statement on Friday it had chose 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.

GKN is located in over 30 countries, and includes manufacturing operations in East Cowes on the Isle of Wight.

Unite said it is in close dialogue with GKN executives and its shop stewards will be meeting next week with their European counterparts to agree a coordinated response to stop a takeover.

The Melrose offer valued GKN at 405 pence ($5.48) per share.

Following the warning, its proposed chief executive Kevin Cummings was ousted from the business even before he took up the post and was replaced by non-executive director Anne Stevens on a temporary basis.

At 405p a share, the deal would represent a 24% premium to GKN's closing price on 5 January - the day before the offer - and would value GKN at close to £7bn.

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Under the stock market rules, Melrose is now required to either announce a firm offer by 5pm on 9 February, or announce that it is no longer interested.

The company said it intends to separate the businesses.

Accompanying this decision is a two year initiative (Project Boost) to improve cash and profit in both parts of the business.

The firm itself undertook a "wide-ranging review" of its business past year, as profit margins and cash generation were stuck "below expectations".

'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'.

Annual trading was in line with expectations and GKN continues to expect 2017 management profit before tax to be slightly ahead of the previous year's £678m before write-offs from its North American aerospace business, which are estimated to be between £80m and £130m.

On the appointment of Stevens as new chief executive, the firm's chairman Mike Turner said she "has the track record to transform GKN", pointing to her "successful turnaround" of The Ford Motor Company's Mexico, Canada and South America businesses and senior roles at Carpenter Technology and Lockheed Martin. Today the FTSE 250 company is valued at nearly £4.4bn.

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