UPDATE: Melrose Urges GKN Investors To Reject Dana Deal For Its Buyout (ALLISS)

9th Mar 2018 17:42

LONDON (Alliance News) - Melrose Industries PLC argued Friday that the USD6.1 billion automotive unit merger deal announced by GKN PLC was "prejudicial" to the interests of GKN's shareholders and urged them to vote in favour of its own hostile GBP7.4 billion takeover bid.

The release by Melrose - a FTSE 250-listed industrial turnaround specialist - came shortly after GKN announced its decision to combine its automotive business with New York-listed engineering firm Dana Inc in a USD6.1 billion deal. Earlier on Friday, GKN agreed to merge its Driveline business with Dana to create a new UK company listed in New York to be called Dana PLC.

"Today's announcement changes nothing and is a further admission of the management failure of GKN," Melrose Chairman Christopher Miller said. "A hasty sale of one of Britain's most important businesses will leave it listed overseas, run by a foreign management team and rebranded as a US business. In our view it is structured in a way prejudicial to GKN shareholders' interests. We urge GKN shareholders to accept the Melrose offer."

Under the deal, GKN shareholders will receive 47.3% of the share capital of 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 to a pension scheme to reduce its deficit. In total, the enterprise value of the deal is USD6.1 billion, compared to the current market capitalisation of GKN as a whole of GBP7.33 billion.

GKN Chairman Mike Turner said: "This combination of GKN Driveline and Dana will create a US and UK led global market leader in vehicle drive systems," "The synergies between these two businesses and our complementary product portfolios make this a great deal for GKN shareholders."

GKN believes the combination will result in run-rate synergies of USD235 million by the end of the third year after completion. These gains are in addition to the recurring annual gains of GBP160 million suggested under GKN's "Project Boost" announced by GKN in response to Melrose's takeover offer.

"Following the transaction," Turner added, "GKN shareholders will own 47% of a USD14 billion revenue, global automotive group and will retain ownership of GKN's outstanding remaining businesses."

"GKN is continuing to pursue the sale of its non-core businesses including Powder Metallurgy," Chairman Turner added. "The board remains committed to delivering up to GBP2.5 billion of cash returns to shareholders over the next three years."

"The board believes that this strategy is far more attractive for GKN shareholders than the Melrose proposal which fundamentally undervalues GKN and therefore the board unanimously recommends that GKN shareholders reject the Melrose proposal and vote in favour of the proposed combination with Dana," Turner added.

GKN added the enterprise value to earnings before interest, tax, depreciation and amortisation multiple for the Dana deal stood at 7.5 times. This was moderately below the 7.7 times EV to Ebitda multiple for Melrose's deal for the whole firm including its aerospace and powder metallurgy units.

"Aerospace and powder metallurgy transactions are typically completed at significantly higher multiples than transactions within the automotive supplier sector," GKN explained in a statement.

Melrose argued, however, that the deal would result in a majority owned and managed US business. In return, GKN shareholders would receive US-listed shares which "many would neither wish or be able to hold" adding that receipt of the shares would likely be taxed as dividend income.

"The hasty sale by GKN is being proposed prior to any improvement being made for the benefit of GKN shareholders", Melrose added in a statement.

Earlier on Friday, Melrose reported 5.8% shareholders of GKN PLC have so far approved its hostile GBP7.4 billion takeover bid.

As of Friday - which was the first closing date of the offer before it was extended - Melrose had received acceptances from 99.6 million of the 1.73 billion GKN shares outstanding. The current closing date for acceptances is March 29.

As far as Melrose was aware, it added, none of these acceptances were from parties acting in concert with it.

Ealier on Friday, GKN said it was still pursuing the divestment of its powder metallurgy business. After this is complete, GKN will be an aerospace-focused engineer which - the company said - will result in it being "positioned to deliver value for decades to come".

GKN is targeting core margins of at least 14% for 2020 from its aerospace business. GKN also remained committed to the Project Boost work to make significant savings within the business by the end of 2020.

Shares in GKN closed 3.3% higher at 435.10 pence on Friday, Melrose closed 4.0% higher at 224.70p.

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