Melrose Fires Volley of Promises in Last-Ditch Pitch for GKN

(Bloomberg) -- Melrose Industries Plc made a last-ditch effort to allay concerns over whether it would be the right owner for GKN Plc as the battle for the U.K. engineering company takes on a political dimension a day before its 8 billion-pound ($11 billion) hostile offer runs out.

“Melrose fully stands behind its plan to work for the improvement of not only GKN, but the U.K. economy as well,” the Birmingham, England-based takeover specialist said in a statement Wednesday. In laying out a long list of promises on GKN, including a pledge to keep its aerospace arm for five years, Melrose took a further step and said it won’t sell or reorganize itself during the period.

Melrose Fires Volley of Promises in Last-Ditch Pitch for GKN

A deadline for shareholders to accept Melrose’s unsolicited offer expires on Thursday. The bid is in opposition to Redditch, England-based GKN’s own plan to break itself up by selling an automotive business to U.S. partsmaker Dana Inc. The conflict is the largest U.K.-only hostile-takeover tussle in a decade, with the level of acrimony rising daily as each side lobs accusations and counterarguments about the two vastly different proposals for the company’s future.

GKN hit back later Wednesday accusing Melrose of “increasingly hysterical language” and saying its pledges had been extracted at the eleventh hour, giving investors little time to assess them. It said the turnaround firm’s real nature could be gauged from the likelihood of significant job losses at U.K. power-generation specialist Brush after consultation on cuts began last month.

Shares of GKN traded 1 percent lower at 426.1 pence as of 1:33 p.m. in London. The company’s market value is 7.32 billion pounds, or 12 percent below the 8.33 billion-pound Melrose offer.

‘In the Dark’

U.K. politicians and labor groups have waded into the tug-of-war with doubts about Melrose’s expertise and portrayals of the firm as an asset-stripper in disguise. Planemaker Airbus SE has also warned that it may not continue as a customer.

On Tuesday the dispute reached the U.K. Parliament, where Business Secretary Greg Clark said Melrose needed to spell out its intentions for ownership of the aerospace business, without which the government “would have been in the dark.”

Asked whether he would block a Melrose takeover for national-security reasons, Clark said he’d decide on whether there are “grounds for an intervention” only after hearing from the Ministry of Defence. “I will make a decision on that basis once the bid is closed,” he said.

Melrose responded with the offer of a legally binding guarantee preventing it from selling the aerospace division, which includes politically sensitive defense activities, until April 1, 2023. It has also promised to keep headquarters, a stock listing and a majority of directors residing in the U.K. as well as offering pledges on research and development spending.


In a further twist Wednesday, the suitor said it won’t “undertake a reorganization of the Melrose Group, the effect of which is for Melrose to be absorbed into another entity or otherwise cease to exist as a legal entity,” according to the statement. That pledge contains caveats in the event of an offer for the company.

For its part, GKN’s proposal is for an immediate breakup, which would leave current management in control of the remaining aerospace group. Maumee, Ohio-based Dana on Monday increased the cash portion of its $6.1 billion bid for GKN’s Driveline unit by about $142 million.

The U.S. manufacturer said Tuesday that it’s offering superior value with a greater upside and lower execution risk. Melrose countered on Wednesday that its terms are “clearly superior both in value and deliverability.”

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