GKN Chairman to Investors: Melrose Bid is ‘Low Price and High risk’


In a letter to shareholders, Mike Turner, the chairman of GKN said that the opposed bid for GKN, a British engineering group, amounting to 7.4 billion pounds from Melrose Industries is considered to be “low price and high risk” and that it undervalues the company.

Turner said that Melrose had a short-term business model which was not suitable for GKN.

GKN makes parts for Black Hawk helicopter, the Boeing 737 jet, and some components for the cars of Ford and Volkswagen. It said that its plan to separate its automotive and aerospace divisions is anticipated to deliver a recurring annual cash benefit amounting to 340 million pounds from the end of 2020.

In the letter, Turner added that all of that said benefit would be passed on to the shareholders of GKN.

On Wednesday, GKN promised to return 2.5 billion pounds to its investors over the coming three years, improving its efforts to fend off the opposed bid.

On the 17 of January, Melrose made a firm offer to acquire GKN which is valued at 7.4 billion pounds or 430.1 pence per share, which was quickly rejected by GKN.

The offer of Melrose for GKN consists of 81 pence in cash and 1.49 new Melrose shares for each share of the GKN.

The business model of Melrose is to acquire engineering companies, improve the margins of the acquire company and resell them. It already owns Nortek, a diversified firm, and the Brush electricity generating equipment businesses.

Melrose has some experience in aerospace after acquiring a manufacturer of aerospace components called McKechnie, and Dynacast, the maker of small precision components, in 2005. The company sold its aftermarket and aerospace businesses in 2007.

As a response to Melrose, Turner said that GKN is six times the size of the largest previous acquisition of Melrose, adding that the board of Melrose lacks relevant experience at board level in various critical areas.

Turner reiterated the recommendation of  GKN to its shareholders to take no action in connection with the offer of Melrose, saying that the bidder is concentrating more on financial engineering instead of real engineering.

The shares of GKN were up by 1.5 percent at 417.4 pence by 0803 GMT.