(Bloomberg) -- The biggest hostile takeover battle between U.K. companies in a decade is drawing to a climax Thursday when Melrose Industries Plc’s 8 billion-pound ($11 billion) offer for engineering company GKN Plc expires.
The tug-of-war for one of the country’s oldest industrial manufacturers has grown increasingly acrimonious in recent weeks and taken on political overtones as the government and trade unions waded into the fray. Shareholders have until 1 p.m. to accept Melrose’s bid or stick with GKN’s proposal to break up the company. Here’s a run down:
Melrose’s swoop for GKN in January was triggered by upheaval, which began with a profit warning and then the firing of the incoming CEO. The suitor thinks it can manage the company better. GKN traces its history to 1759 and the founding of an iron works venture in Wales. After emerging from WWII as the country’s biggest steel producer, it branched into automotive and aerospace markets. While the long narrative has illicited nostalgia among workers, its role in military aircraft supplies has attracted government scrutiny amid the possible change in ownership.
Melrose: The Hostile Suitor. For the takeover specialist focused on industrial companies, the 8.3 billion pound-offer makes GKN its chunkiest and most ambitious target to date.
Dana Inc.: The White Knight. The U.S. based automotive supplier stepped in with a $6.1 billion offer to buy out GKN’s car-parts business, allowing the U.K. firm to focus on its more profitable aerospace operations.
The U.K. government: Ultimate Arbiter. Business Secretary Greg Clark has raised concerns about Melrose’s short-termist business model while Defense Secretary Gavin Williamson warned about GKN’s role in supplying parts for military programs. Clark told parliament Tuesday he would decide whether there’s “grounds for intervention” once the bid is closed.
Airbus SE: The Customer. The European planemaker has warned Melrose that any reduction in spending on research and development at GKN would be make it “practically impossible” for it to hand the company new work.
Elliott Management Corp.: The Activist Shareholder. With a stated holding of about 3 percent in GKN, the investor that has been pressuring companies around Europe this past year threw its weight behind Melrose’s offer, saying its management would be better able to squeeze returns out of the business.
How the Offers Stack Up:
Ironically, Melrose has pledged a less radical plan for GKN. Its cash-and-share offer is valued at about 8.3 billion pounds and includes plans to sell GKN’s powder metallurgy business. In response to government concerns, Melrose has also committed to holding on to aerospace division for the next five years.
On the other side of the ring things get a little more complicated. GKN would combine the automotive division with Dana in a sweetened cash-and-share deal valued at $6.1 billion. GKN would then start handing out 2.5 billion pounds to investors over the next three years. It would also sell off the powder metallurgy business and some of the lower-margin bits of its aerospace unit, including as much as two thirds of the sites in the troubled North American business.
Shareholders have until 1 p.m. on Thursday to accept Melrose’s offer and then it’ll take as long as four hours for Melrose to publish the outcome. Takeover rules require a result before 5 p.m. Just last week, Melrose made its job easier by lowering the threshold for acceptance to 50 percent of the shares plus one vote from its original 90 percent target.
What Happens Next:
If Melrose wins: The Easter weekend just got sweeter for Melrose management. The company has a period of 21 days leading up to the critical Day 81 of U.K. takeover rules when the offer can become wholly unconditional. Then Dana’s bid for the driveline business falls to the wayside, and a management shake up would follow. There would also likely be an aggressive push for meetings with customers like Airbus.
If GKN wins: A sigh of relief from CEO Anne Stevens and then the real work starts. First, GKN must tease out merger plans with Dana before putting the deal to shareholders before the end of the year. At the same time, it’ll need to start delivering on promises to sell-off units, start returning cash to investors and boost margins and profits. Under takeover rules, Melrose could be back in six months.
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