Publication of Response Circular

LEI: 213800QNZ22GS95OSW84

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF THAT JURISDICTION.

15 February 2018

GKN plc ("GKN")

Publication of Response Circular

The Board of GKN (the "Board") announces that it is today publishing its response circular (the "Response Circular") in connection with the unsolicited offer made by Melrose Industries PLC ("Melrose") to acquire the entire issued and to be issued share capital of GKN for 1.49 new Melrose shares and 81 pence in cash per share (the "Offer").

The Board continues to view the Offer as entirely opportunistic and believes that its terms fundamentally undervalue GKN and its prospects. A letter from the Chairman of GKN to GKN shareholders, as set out in the Response Circular, has been extracted below.

LETTER TO GKN SHAREHOLDERS FROM THE CHAIRMAN OF GKN

15 February 2018

Dear Shareholder,

Thank you for taking the time to read this document. It contains important information which we believe is of great significance to you. As you know, on 1st February 2018 Melrose made an offer for GKN which, on the basis of its latest share price, values your company at only 397p per share and leaves you with 57% of an enlarged Melrose. It is your Board's belief that this offer is entirely opportunistic and that the terms fundamentally undervalue GKN. This document explains why.

GKN has world class businesses with huge potential that is just beginning to be realised

Your company has leading technology and market positions in the aerospace and automotive markets. We have strong and long standing customer relationships supported by our global manufacturing and engineering footprint. Through GKN's sustained focus on, and investment in, world class technologies, your company not only has a strong business today, but also has leadership positions in a number of large, rapidly growing markets such as Aero Engines, eDrive and Additive Manufacturing. We have made significant long term investments which are expected to generate considerable growth, profits and cash flow for decades to come. As shareholders of GKN, your Board believes you should receive 100% of the benefit of these investments.

GKN's new leadership team has a new strategy to substantially improve cash flow and shareholder value

GKN has been successful in building global businesses and delivering above market growth which has created a company with annual sales in 2017 of £10.4bn. However, this has at times been at the expense of maximising margins and cash generation. The Board has recently appointed two highly qualified new executive leaders who are addressing this. Anne Stevens, your new Chief Executive, has extensive experience in both the aerospace and automotive markets. She also has a proven track record of performance improvement. Jos Sclater, your new Finance Director, combines 20 years of acquisition and divestment experience with an in-depth knowledge of the business and strong working relationships with key stakeholders. They are backed by an experienced set of operational leaders.

Anne and Jos have already started implementing a new strategy that your Board believes will substantially improve profits, cash flow and shareholder value. As part of this strategy, we plan to continue to lead in our chosen markets. But we will also take a sharply differentiated approach to product segments, based on rigorous capital allocation and performance targets. The new strategy is expected to establish a delivery culture based on greater accountability, capability and pace, supported by aligned incentives. The strategy also includes separating our Aerospace and Driveline businesses to ensure greater transparency and focus. Today, we are separating operationally. We will separate formally when it maximises value for you, our shareholders.

With this new plan, we expect to deliver £340m recurring annual cash benefit from the end of 2020.1 As a GKN shareholder, you will receive 100% of this benefit. If Melrose acquires GKN, it would have to generate 1.76x the level of improvement that GKN would have to deliver in order to give you, as a shareholder, the same future benefit.2 This is because accepting Melrose shares dilutes your ownership of GKN's business from 100% to 57%.

Under our new plan, which your Board believes will allow GKN to achieve world class financial performance, we are targeting a 2020 management trading margin of 11% for the core GKN Group, at least 14% for core Aerospace and at least 9.5% for core Driveline.

The new strategy has a clear framework that is expected to result in significant cash returns to GKN shareholders. We plan to sell our Powder Metallurgy division as well as a number of other non-core businesses. Our dividend policy will be to target an average payout of 50% of free cash flow over the period of 2018 to 2020. In addition, we expect to distribute surplus cash to shareholders, subject to maintaining an investment grade credit rating. In total, we are targeting returning up to £2.5bn to shareholders over the next three years, with a significant part expected to come from divestments executed within the first 12-18 months.

The Melrose offer is not a good deal - it is low price and high risk

Melrose is only offering 7.9x GKN's 2017 EBITDA.2 This is a discount compared to average multiples of comparable transactions. Applying precedent transaction multiples would imply a value substantially in excess of Melrose's offer.

The premium Melrose is offering is very low. On the basis of its most recent share price, Melrose claims its premium is 22%. By comparison, precedent FTSE 100 takeovers have an average premium of 43%. Melrose has also paid materially higher premiums in each of its prior public takeovers. In the case of FKI, Melrose's only prior UK public takeover, the premium was 72%.

Furthermore, GKN believes that Melrose's stated premium of 22% is misleading. Melrose's market capitalisation is significantly smaller than GKN's, the offer is 80% in shares and Melrose brings no industrial synergies. As a result, GKN shareholders are funding most of the premium themselves, resulting in an actual premium of 10%2.

GKN currently has an investment grade balance sheet and prudent leverage, reflecting the inherent cyclicality of its end markets and its significant pension commitments. By comparison, Melrose has a materially higher proposed leverage and weaker credit profile, both of which increase the risk for shareholders. As Melrose already has significant debt, of the 81p per share in cash that Melrose is offering you, 77p is effectively funded by GKN's own balance sheet2.

Melrose's management team lacks relevant experience and its short term business model is inappropriate for GKN

GKN is six times the size of Melrose's largest acquisition and your Board believes that Melrose's management team lacks relevant experience at Board level in several critical areas. Firstly, Melrose has very limited experience in the aerospace and automotive industries, having exited both sectors more than six years ago. As a result, there is no evidence that Melrose's management has relationships with key customers such as Airbus, Boeing, Fiat Chrysler, Ford and VW. Furthermore, Melrose's stated three-to-five-year exit strategy is not compatible with the long-term investment and technology horizons that are essential in GKN's markets. Cars and aircraft are researched, designed, produced and serviced over several decades - your Board believes that a short term, private equity-style strategy is not the right way to provide sustained shareholder value in our sectors.

Finally, your Board believes that Melrose is more focused on financial engineering than real engineering, that its management team focuses on accounting margin and that its capitalisation of research and development and heavy use of provisioning confuse understanding of its profitability.

Your Board strongly believes that GKN's new leadership team and strategy can maximise shareholder value and that, as a GKN shareholder, you should receive 100% of the benefit of this strategy.

TAKE NO ACTION

Your Board, which has been so advised by Gleacher Shacklock, J.P. Morgan Cazenove and UBS (the "Advisers") as to the financial terms of the offer, believes that Melrose's offer fundamentally undervalues GKN. In providing their financial advice to the Board, the Advisers have taken into account the Board's commercial assessments. Gleacher Shacklock and UBS are providing independent financial advice to the Board for the purposes of Rule 3 of the City Code.

Accordingly, the Board unanimously recommends that you should take no action in relation to the offer and that you should not sign any document which Melrose or its advisers send to you. Your Directors will not be accepting Melrose's offer in respect of their own beneficial shareholdings.

We will write to you again during the course of the offer to keep you informed of any further developments.

Yours sincerely,

Mike Turner CBE, Chairman of GKN

Notes:

In accordance with the requirements of Rule 25.1(b) of the City Code on Takeovers and Mergers (the "City Code"), a copy of the Response Circular will shortly be made available on www.gkn.com. A copy of the Response Circular has been submitted to the National Storage Mechanism and will shortly be made available for inspection at www.morningstar.co.uk/uk/NSM/.

Contacts:

GKN plc

Guy Stainer, Investor Relations Director

Tel: +44 (0)20 7463 2382

FTI Consulting

Andrew Lorenz / Richard Mountain

Tel: +44 (0)203 727 1340

Gleacher Shacklock (Financial Adviser to GKN plc)

Tim Shacklock, Dominic Lee, Tom Quinn

Tel: +44 (0)20 7484 1150

J.P. Morgan Cazenove (Financial Adviser and Corporate Broker to GKN plc)

Robert Constant, Dwayne Lysaght, Stephen Smith

Tel: +44 (0)20 7742 4000

UBS (Financial Adviser and Corporate Broker to GKN plc)

Hew Glyn Davies, James Robertson, Jonathan Retter

Tel: +44 (0)20 7567 8000

Further information

This announcement is not intended to, and does not, constitute or form part of any offer, invitation or the solicitation of an offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of, any securities whether pursuant to this announcement or otherwise.

The distribution of this announcement in jurisdictions outside the United Kingdom may be restricted by law and therefore persons into whose possession this announcement comes should inform themselves about, and observe, such restrictions. Any failure to comply with the restrictions may constitute a violation of the securities law of any such jurisdiction.

Gleacher Shacklock LLP ("Gleacher Shacklock"), which is authorised and regulated by the Financial Conduct Authority in the United Kingdom, is acting exclusively as financial adviser to GKN and no one else in connection with the matters set out in this announcement and will not be responsible to anyone other than GKN for providing the protections afforded to clients of Gleacher Shacklock or for providing advice in connection with the subject matter of this announcement or any other matter referred to herein.

J.P. Morgan Securities plc (which conducts its UK investment banking business as J.P. Morgan Cazenove) ("J.P. Morgan Cazenove") is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the United Kingdom. J.P. Morgan Cazenove is acting exclusively as financial adviser to GKN and no one else in connection with the matters set out in this announcement and will not regard any other person as its client in relation to the matters set out in this announcement and will not be responsible to anyone other than GKN for providing the protections afforded to clients of J.P. Morgan Cazenove or its affiliates, nor for providing advice in relation to any matter referred to herein.

UBS Limited ("UBS") is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the United Kingdom. UBS is acting exclusively as financial adviser to GKN and no one else for the purpose of the consideration of a proposed acquisition by Melrose and will not be responsible to anyone other than GKN for providing the protections offered to clients of UBS nor for providing advice in relation to the subject matter of this announcement or any transaction, arrangement or other matter referred to herein.

Disclosure requirements of the City Code

Under Rule 8.3(a) of the City Code, any person who is interested in 1% or more of any class of relevant securities of an offeree company or of any securities exchange offeror (being any offeror other than an offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the offer period and, if later, following the announcement in which any securities exchange offeror is first identified. An Opening Position Disclosure must contain details of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s). An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 pm (London time) on the 10th business day following the commencement of the offer period and, if appropriate, by no later than 3.30 pm (London time) on the 10th business day following the announcement in which any securities exchange offeror is first identified. Relevant persons who deal in the relevant securities of the offeree company or of a securities exchange offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing Disclosure.

Under Rule 8.3(b) of the City Code, any person who is, or becomes, interested in 1% or more of any class of relevant securities of the offeree company or of any securities exchange offeror must make a Dealing Disclosure if the person deals in any relevant securities of the offeree company or of any securities exchange offeror. A Dealing Disclosure must contain details of the dealing concerned and of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s), save to the extent that these details have previously been disclosed under Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 pm (London time) on the business day following the date of the relevant dealing.

If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of an offeree company or a securities exchange offeror, they will be deemed to be a single person for the purpose of Rule 8.3.

Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with any of them (see Rules 8.1, 8.2 and 8.4).

Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel's website at www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the offer period commenced and when any offeror was first identified. You should contact the Panel's Market Surveillance Unit on +44 (0)20 7638 0129 if you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure.

Publication

In accordance with Rule 26.1 of the City Code, a copy of this announcement will be published on the GKN website (www.gkn.com) by no later than 12 noon on the business day following this announcement. The content of the website referred to in this announcement is not incorporated into and does not form part of this announcement.

Cautionary Statement

This announcement contains forward looking statements which are made in good faith based on the information available at the time of its approval. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a number of risks and uncertainties that are inherent in any forward looking statement which could cause actual results to differ materially from those currently anticipated. Nothing in this document should be regarded as a profit forecast.