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GKN calls Melrose out over 'misleading' offer statement, Melrose bites back
The tit-for-tat exchanges between Melrose Industries and GKN continued on Thursday, as Melrose responded to comments from its bid target, which said earlier in the day that the company's offer statement was "misleading", after the engineer rejected a hostile, sweetened bid of £7.4bn a day earlier.
Turnaround specialist Melrose said on Wednesday that the terms of its offer represent a premium of around 32% over the closing price of GKN on 5 January, but GKN said the statement was misleading, adding that this was a "fake" premium.
"Melrose's market capitalisation on 5 January was significantly smaller than GKN's on the same day, Melrose is proposing to fund 80% of the offer consideration in shares and Melrose brings no industrial synergies. Instead, GKN's shareholders are themselves funding the majority of this premium. The true, delivered premium is less than 11%," it said.
However, Melrose said the real premium is reflected in the current share prices of GKN and Melrose, both of which have risen sharply since the announcement of the approach.
Chief executive Simon Peckham said: "In less than a week shareholders have seen 104p per share or £1.8bn added to the value of GKN which shareholders can, if they wish, realise today in the market. Melrose's actions have done that, not GKN's management.
"Melrose believes that the shareholders of GKN are best placed to judge which management team is better equipped to deliver the greatest value to shareholders of GKN."
In its statement earlier, GKN also addressed several other points made by Melrose on Wednesday, such as its suggestion that the engineer wants a "hasty break-up" of its businesses. GKN said this was not the case and that the timing of the separation of its automotive and aerospace divisions will be determined by the need to maximise the economic benefits and minimise the costs.
GKN said the immediate focus of new management is on executing Project Boost, which aims to deliver a step change in cash generation and profit margin.
GKN also pulled apart Melrose's suggestion that it could do a better job at improving the engineer's operational and financial performance, given its track record.
"GKN is a significantly larger business than any which Melrose has acquired in the past. GKN is more than 5 times larger than any of Melrose's prior acquisitions by revenue. Melrose has very limited experience at board level of managing Tier 1 aerospace and automotive suppliers. In contrast, Anne Stevens, having been COO of Ford Americas and chairman, CEO and president of Carpenter Technology, has direct experience of Tier 1 supplier relationships and of transforming a business of the size, complexity and technological content of GKN. Importantly, she has experience in aerospace, automotive and powder metallurgy."
Stevens said on Thursday: "We believe GKN's current owners should retain 100% of the benefits of the clear upside potential in GKN, rather than handing 43% of this upside to Melrose and its shareholders. We have already stated that the terms of Melrose's offer fundamentally undervalue the company and we are actively engaging with shareholders to explain how our transformation plan will provide value, whilst debunking some of Melrose's inaccurate assertions."
Lee Wild, head of equity strategy at Interactive Investor, said: "After yesterday's hostile bid from Melrose, GKN has launched a scathing attack on the turnaround specialist, but expect Melrose to go on a massive charm offensive over the coming weeks. An offer worth around 430p is almost 50% higher than GKN shares were a month ago, and would likely have taken years to achieve otherwise.
"That such a large portion of the offer is in Melrose shares does not help, but GKN shareholders must be tempted to take the money now rather than gamble on current management making a success of it. It's worth noting that, despite several attempts, GKN shares have never managed to make a move above 400p stick. This is their chance."
At 1555 GMT, GKN shares were down 0.2% to 446.90p and Melrose shares were off 0.2% to 234.50p.