EXTRA: GKN Rejects Melrose Proposal, Launches Improvement Programme

  • EXTRA: GKN Rejects Melrose Proposal, Launches Improvement Programme

EXTRA: GKN Rejects Melrose Proposal, Launches Improvement Programme

"The board of GKN has considered the proposal. and has unanimously rejected it, having concluded that the proposal is entirely opportunistic and that the terms fundamentally undervalue the company and its prospects", it said. Compounding the upheaval, the United Kingdom decision to leave the European Union has clouded the outlook for the country's autoparts manufacturers due to their reliance on open trade.

By 11.20am, GKN shares had extended their earlier gains to over 26%, up 87.3p at 420p, while Melrose shares gained 5.4% or 11.6p at 226.6p.

"The money to be made from a split is likely to have been what drew turnaround specialist Melrose to the table in the first place - the challenge for newly confirmed chief executive Anne Stevens is to deliver a better result for shareholders than the 405p she turned down today", he added.

"The proposal would materially dilute the exposure of [our] shareholders to the meaningful upside opportunities that the board believes are present within the company", says GKN.

Shares in Smiths Group (LON:SMIN) rose 4.3% as the engineering firm said that the reforms to USA corporate income tax would benefit the company over the medium term.

"We believe Melrose would be able to substantially improve the operations and we suspect shareholders would support an increased bid", Liberum analyst Ben Bourne said in a note to clients. The cash portion of the bid would be financed by debt.

The firm issued a profit warning in October over problems at its aerospace division.

"GKN shareholders would become major participants in this potential future value creation, over and above the attractive immediate premium over the GKN share price", Melrose said. This is before accounting for the previously announced substantial write-offs in the North American Aerospace business.

A second large writedown at the aerospace division in November saw the departure of chief executive-designate Kevin Cummings, the head of the aerospace division who had been set to take over the top job this month. The factory makes parts for every Airbus plane, including the newest A350 wide-body, guaranteeing years of work.

Melrose, valued at £4.16 billion at the close on Thursday, specialises in buying companies that it can improve through investment and cost cuts with the aim of selling them at a profit.

The company said August 31 it had been busy exploring potential acquisitions over the summer of 2017.