LONDON, March 19 — The battle for British engineering company GKN intensified today, with both Melrose and Dana sweetening their proposals before a March 29 takeover deadline.
Melrose offered to inject about £1 billion (RM5.5 billion) into GKN’s pension scheme in its latest attempt to convince shareholders to back its £7.8 billion hostile bid and win over political opponents of the deal.
It also lowered the acceptance condition for its offer to 50 per cent plus one share from 90 per cent, increasing its chances of winning the company after investors appeared divided on the matter.
GKN is trying to fight off the Melrose bid with an alternative US$6.1 billion deal to merge its automotive business with US company Dana Incorporated, leaving GKN focused on its aerospace division.
GKN shareholder Columbia Threadneedle today threw its weight behind GKN’s plan and said it planned to reject the Melrose offer, becoming the biggest investor yet to make its position known.
Dana said today it would seek a secondary listing in London, a move which should enable more UK shareholders to back the rival plan as some funds are subject to rules which prevent them from holding US stock.
The US company also promised GKN investors a slice of its dividend as it said it would pay its current quarterly dividend of US$0.10 per share to the enlarged shareholder base.
The plan for a secondary listing came after Dana executives had met GKN shareholders.
“The clear message from shareholders is that they want to be able to hold stock in a combined Dana plc,” Dana said in its statement.
Aiming to give GKN shareholders extra confidence in the future of the merged GKN-Dana unit, the US company today also upgraded its margin and sales guidance, saying that it had “over-achieved” on synergies from past acquisitions.
GKN’s shares were down 0.2 per cent at 426.5 pence at 1348 GMT, while Melrose shares were down 0.5 per cent at 223 pence.
Jefferies analyst Sandy Morris said GKN shareholders were in a fortunate position as, in his view, none of the options “look bad”. He added that breaking up GKN’s auto and aero units would make valuation easier.
“There remain some imponderables such as the risk of Melrose morphing into GKN. The market struggled to understand and measure GKN as currently comprised and could do so again if Melrose owns GKN for 3-5 years,” he said in a note.
Pension injection
The formal proposal from Melrose to GKN’s pension scheme trustees to inject £1 billion into the funds over the Melrose ownership period represented a huge increase on its previous plan to add £150 million.
Some British politicians have objected to Melrose’s bid, citing worries that GKN’s pension scheme would be weaker under new ownership, and risks to national security as GKN is a supplier of parts to the Eurofighter Typhoon.
The fate of deficit-ridden pension schemes after company takeovers is a concern in Britain following the collapse of department store chain BHS in 2016. Melrose said that its new proposal should alleviate those concerns.
“The proposal...is a clear example of what Melrose does which is good for pensioners and shareholders alike and shows we are a good custodian for all stakeholders,” Melrose said in its statement.
Melrose said the pension offer exceeded GKN’s deficit reduction package of £528 million which it had agreed with the trustees alongside the Dana deal.
The length of Melrose’s ownership period is unclear, however. As a turnaround specialist, its business model is typically to break up companies once it has improved their performance.
GKN shareholders are left to choose between the two options: Melrose’s offer of 81 pence in cash for each GKN share plus 1.69 new Melrose shares, a deal that will hand them a 60 per cent stake in the London-listed turnaround specialist.
Or they can back GKN’s plan, which would see them take a 47.25 per cent stake in New York-listed Dana, and accept a promised return of £2.5 billion from the planned sale of its powder metallurgy business and the Dana deal.
Melrose’s hostile bid has so far split GKN shareholders. Columbia Threadneedle, a top 10 shareholder in GKN with a 3.4 per cent stake according to Reuters data, said today it would reject the offer, joining top 30 investor Jupiter Asset Management’s Steve Davies. While Aviva Investors, also in the top 30, has lent support to the Melrose deal.
Airbus, GKN’s biggest customer, has also been vocal. It said on Thursday it could not guarantee new work to an owner with a short-term perspective. Some commentators see Melrose as operating with a short-term model. — Reuters
