ibusinesslines.com March 19, 2018

GKN shares skyrocket after it thwarts £7bn takeover

13 January 2018, 12:53 | Kelvin Horton

GKN - Offer rejected, Automotive and Aerospace to separate

A decision by GKN whose technology is used in the Ariane 5 rocket to separate its aerospace and automotive business after an approach has boosted its shares

Engineering company GKN is long established in the United Kingdom and internationally with aerospace and automotive operations.

The automotive and aerospace parts manufacturer confirmed in an update on Friday that it had received a "preliminary and unsolicited proposal from Melrose" on 8 January worth 405p per share, a 24% premium to its closing price on 5 January of 326p.

The firm itself undertook a "wide-ranging review" of its business a year ago, as profit margins and cash generation were stuck "below expectations".

A surge in the shares of GKN has helped drive the FTSE 100 to a new all-time high afer the troubled engineering group rejected a takeover approach from rival Melrose.

The bid was rejected, but GKN promptly admitted that it would now start the process of a demerger.

Following the warning, its proposed chief executive Kevin Cummings was ousted from the business even before he took up the post and was replaced by non-executive director Anne Stevens on a temporary basis.

GKN also announced interim chief executive Anne Stevens would become the new boss of the company with immediate effect after its incoming chief executive left the group in November before taking up his new role.

The Board of GKN has considered the Proposal together with its financial advisers, Gleacher Shacklock, J.P. Morgan Cazenove and UBS Limited, and has unanimously rejected it, having concluded that the Proposal is entirely opportunistic and that the terms fundamentally undervalue the Company and its prospects.

'The separation of the automotive and aerospace units has been on the cards for years, with little obvious cross over between the two businesses, ' he said. The company was founded and floated on the stock market in 2003 as a cash shell by three businessmen, Christopher Miller, David Roper and Simon Peckham, who put about £3m into the business.

The union urged shareholders to hold firm, warning that the bid was not in the long-term interest of GKN and could result in the company's assets being stripped. "I am relishing the challenge of delivering that potential with a new group-wide improvement programme underway".

While that plan does not yet entail a full separate listing, it could make one possible in the future.

Simpson Thacher is representing manufacturing turnaround specialist Melrose, with London M&A partners Adam Signy and Ben Spiers leading its team.

It said: "The board will communicate further details on the optimal method of separation in due course".

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