EXTRA: Melrose Hits Back At GKN's Dana Deal With Sweetened Offer (ALLISS)

12th Mar 2018 14:15

LONDON (Alliance News) - FTSE 100-listed engineering firm GKN PLC was "evaluating" the sweetened GBP8.1 billion takeover offer from Melrose Industries PLC, even as the two firms continue to trade barbs in an in increasingly hostile approach.

Earlier on Monday, Melrose raised its offer to buy GKN to GBP8.1 billion in cash and shares from the initial GBP7.4 million bid in January, saying its new offer is final.

Melrose - a FTSE 250-listed industrial turnaround firm - increased its bid to 1.69 Melrose shares for every GKN share held, plus an unchanged 81 pence in cash, together equivalent to 467 pence per share based on Melrose's share price at close on Friday. Shareholders also would be entitled to receive the 6.2 pence final GKN dividend.

Melrose noted that its new offer represents a 43% premium to the 326.3 pence closing price of GKN on January 5, the day before its initial approach to GKN was announced.

As part of its new, final offer, Melrose increased only the share element of its deal. Under the prior deal Melrose offered 1.49 Melrose shares in addition to the 81 pence in cash and dividend entitlement.

Should the deal complete, GKN shareholders will hold 60% of of the new enlarged group and additionally receive GBP1.4 billion in cash.

Melrose emphasised that the deal values GKN "significantly above" the highest price GKN has traded over the past decade. Melrose also lamented the lack of discussion that was being had between the two firms.

"From the very beginning, our preference has been to reach an agreement rather than carrying out a public debate," Melrose Chairman Christopher Miller said.

"We have recently made attempts to engage in constructive discussion with the GKN board with a view to agreeing the terms of a recommended offer. Your [GKN's] board has unequivocally declined each time to enter into any such discussions with us and, as recently as Friday 9 March, was unwilling to even enquire on your [GKN shareholders] behalf as to the terms of any revised proposal, a decision that no doubt you will find both surprising and disappointing."

The increased bid follows the announcement on Friday that GKN had reached an agreement to combine its automotive Driveline business with New York-listed engineering firm Dana Inc in a USD6.1 billion cash-and-shares deal.

Under the deal, GKN shareholders will receive 47.3% of the share capital of the newly-formed combined firm Dana PLC after completion. Based on Dana Inc's USD26.20 share price as of the market close Thursday, this is equivalent to a USD3.5 billion stake in the new firm.

GKN also will receive USD1.6 billion in cash. This is after deducting USD1.0 billion for a transfer of a pension scheme deficit to Dana PLC. In total, the enterprise value of the deal is USD6.1 billion, compared to the current market capitalisation of GKN as a whole of GBP7.48 billion.

"Melrose believes that this hasty and ill-thought-through transaction is prejudicial to GKN's shareholders," Miller said.

On Monday, Melrose reiterated its belief that the Dana agreement was a "bad deal" for GKN shareholders in what it termed a "hasty fire sale". It would result, Melrose explained, in the sale of GKN's Driveline business before any improvement "that all parties agree is achievable". It also forces GKN shareholders to accept shares in a US firm which many would not be able to hold, and they also would have to pay tax on those Dana shares.

"This transaction would involve a lengthy and uncertain completion process," Miller added, "including anti-trust clearances in the EU, US and China, as well as Dana's shareholder approval, which is not expected until the last quarter of 2018."

In contrast, Melrose emphasised its had - in addition to Melrose shareholder approval - already received US, Canadian and European anti-trust approval.

"All remaining required regulatory approval processes, including CFIUS [Committee on Foreign Investment in the US], have been initiated and are progressing well," Miller explained.

The Dana deal - in addition to the potential sale of GKN's powder metallurgy business - would see pension liabilities for GKN's remaining aerospace business stand at 10 times profit. This is more than three times the FTSE 100 average, Melrose argued.

"The deal signed with Dana means that over two thirds of the group's gross pension liabilities, including approximately 85% of the gross UK pension liabilities, will remain with the GKN group following the sale even though less than half of the profits of the group are retained," Miller said. "This brings a material increase in risk to the remaining group."

Melrose added it had been an "impeccable steward" of pension schemes in the past and has "strengthened every single pension scheme we have acquired". GKN Pension Scheme Trustees and Melrose were said it be in "constructive talks" with Melrose already committing to higher annual payments than GKN currently contributes.

"It is our view that it is irresponsible of the GKN Board to proclaim a value maximising strategy whilst overburdening its only remaining business with liabilities of this nature," Miller said. "Shareholders should be concerned that the future GKN Aerospace business may be hampered in its ability to compete and invest on the global stage."

Melrose reiterated investors had until March 29 to accept the new offer and urged them to do so "without delay".

In response, GKN itself urged investors wait for its to complete a review of the bid.

"The board of GKN is currently evaluating the revised offer," GKN said in a statement in response. "Shareholders are advised not to sign any document which Melrose or its advisers send to them. GKN Directors will do the same in respect of their own beneficial shareholdings."

Last Friday, Melrose reported 5.8% of GKN's shareholders of had so far approved its original, lower hostile GBP7.4 billion takeover bid.

Shares in Melrose were 4.6% lower at 214.40 pence on Monday, while GKN shares were down 1.2% at 430.20 pence.

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Related Shares:

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