Melrose Makes $10.2 Billion Hostile Offer to Acquire GKN

(Bloomberg) -- Melrose Industries Plc made a hostile 7.4-billion-pound ($10.2 billion) bid for GKN Plc, which spurned the approach, setting up a battle to win shareholder support for the deal or the aviation supplier’s own plan to break itself up.

The offer values GKN at 430.1 pence a share in cash and stock, Birmingham, England-based Melrose said in a statement Wednesday. After rejecting an initial approach on the same terms last week and announcing a breakup plan, GKN reiterated today the offer undervalued the company.

Melrose Makes $10.2 Billion Hostile Offer to Acquire GKN

Melrose, an investment firm that specializes in turning around industrial companies, said it acted after meeting this week with shareholders in Redditch, England-based GKN, a key supplier to Airbus SE and Boeing Co. The firm bid will add to the pressure on the target to come to the table and negotiate a deal.

GKN Chief Executive Officer Anne Stevens and Finance Director Jos Sclater are now meeting investors to shore up support for their strategy. Shareholders should profit from all of the “clear upside potential in GKN, rather than handing almost half of this upside to Melrose,” the company said in a statement.

Melrose is striking at a delicate time for GKN, which said in November it was firing its incoming chief executive officer before he even started amid mounting write-offs related to a troubled aerospace plant in Alabama. Compounding the upheaval, the U.K. decision to leave the European Union has clouded the outlook for the country’s autoparts manufacturers because of their reliance on open trade. 

The planned breakup would separate GKN’s autos unit, which makes drivetrain components, from the more profitable aerospace division. The group also has metallurgy and land-systems divisions. With the announcement last week, GKN named Stevens to the CEO job on a permanent basis.

While the formal offer has the same components as the initial approach -- 1.49 Melrose shares and 81 pence for each GKN share -- its value has risen from 405 pence a share with Melrose’s stock price since last week.

Standard Life Aberdeen, a top GKN shareholder that also owns Melrose shares, considers the current offer to be reasonable, according to a person familiar with the matter. GKN’s management and Melrose are both underestimating the difficulty of a turnaround effort, the person said.

Vulcan Value Partners, another GKN investor, told the Financial Times this week it favors talks with Melrose.

GKN added 1.3 percent to 447.60 pence on Wednesday in London. The stock has risen 40 percent since the beginning of the year. Melrose advanced 0.3 percent to 235 pence, and is up 11 percent year-to-date.

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