Melrose Meets with Shareholders of GKN to Pursue £7bn bid, While Interest from Carlyle Could Start Bidding War

By RobMag66 [CC BY-SA 3.0] via Wikimedia Commons

Tomorrow, the London-listed company which acquires and turns around manufacturing firms, Melrose, is scheduled to meet with shareholders of GKN, an engineering giant, in order to pursue a bid amounting to £7bn.

However, the process could quickly turn into a bidding war, as some sources have told reporters that Carlyle, a US buyout house, has also been interested in GKN.

On the 8th of January, Melrose initiated its 405p per share offer for GKN, which manufactures parts for Volkswagen and Boeing. Even though the management of GKN declined the said offer, and came up with the company’s own plan to divide the business in two, sources informed reporters that Melrose would strive to convince shareholders tomorrow regarding the merits of its takeover offer.

Carlyle, the private equity giant, has earlier expertise in aerospace and manufacturing and businesses, having invested in various names including Atlas Aerospace and Axalta Coating Systems. It is understood that some other buyers are also considering the idea of making a bid for GKN.

However, a spokesperson for Melrose said that any offer would likely have to be considerably more than its £7bn bid since it is offering the investors a “significant upside” as it improves the business and will enable the current shareholders to retain a 57 percent stake.

Last week, shares in GKN rose to a 10-year high, following the announcement of the business regarding its acceleration of plans to separate its automotive operations from its aerospace business in an attempt to stave off the takeover bids.

The move was widely popular with the existing investors, who had stimulated calls for a split since a surprising profit warning last October that was prompted by difficulties in aerospace.

However, Melrose said that the company could “re-energise and re-purpose GKN’s operations,” maximising value for its shareholders prior to any potential division.

The board of GKN responded by saying that the offer was “entirely opportunistic” and “fundamentally undervalues the company and its prospects.”

Even though an acquisition by Carlyle would be a questionable move, given the reputation of the private equity for asset stripping, a sale to Melrose might draw in similar criticism. Today, Howard Wheeldon, an Aerospace analyst, called the company a “vulture,” saying that its turnaround mandate was a “euphemism for stripping the assets and loading the company up with debt.”