UPDATE 2-Britain's GKN dismisses "fake" Melrose bid premium

* GKN says Melrose 32 pct bid premium is "fake"

* GKN says real premium on offer is around 11 pct

* Dismisses Melrose claim it pursuing "hasty break-up"

* GKN says actively engaged with its shareholders (Updates with further details, GKN CEO quote)

Jan 18 (Reuters) - British engineering group GKN dismissed Melrose's 7.4 billion pound ($10.2 billion) hostile bid as "misleading" on Thursday, and denied it was rushing into a break-up.

GKN rejected turnaround specialist Melrose's bid on Wednesday, saying that the terms of the paper-and-cash offer were "effectively unchanged" from a first private approach on Jan. 8, which GKN also spurned.

"GKN's Board considers 32 percent to be a fake premium. Melrose's market capitalisation on 5 January was significantly smaller than GKN's on the same day ... and Melrose brings no industrial synergies," it said on Thursday.

"The true, delivered premium is less than 11 percent," GKN, which has since set out plans to split its aerospace and automotive businesses, added.

Melrose pounced on GKN after problems at the engineering firm's aerospace division led to profit warnings in October and November, sparking a sharp share price fall.

The offer, of 1.49 new Melrose shares and 81 pence in cash for each GKN share, was worth 430.1 pence based on Melrose's closing price on Jan. 16.

Melrose's shares have risen since Jan. 5, the day before it approached GKN's board, increasing the value of its bid.

GKN's shares also jumped after it made public its rejection of Melrose's approach on Jan. 12, but Melrose calculated its 32 percent premium based on GKN's undisturbed price on Jan. 5, a calculation that GKN said was misleading.

And while Melrose is proposing to fund 80 percent of the offer in shares, GKN said its shareholders will end up funding the majority of the premium from its balance sheet.

"We are actively engaging with shareholders to explain how our transformation plan will provide value, whilst debunking some of Melrose's inaccurate assertions," GKN's chief executive Anne Stevens said in a statement.


Melrose, whose business model is to buy engineering companies, improve their margins and resell them, already owns diversified engineering firm Nortek and the Brush electricity generating equipment businesses.

GKN, which is currently valued at 7.7 billion pounds, also said it is a significantly larger business than any which Melrose, which has a market capitalisation of around 4.6 billion pounds, has acquired in the past.

"GKN is more than five 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," GKN said.

GKN also refuted Melrose's claim that it wanted a "hasty break-up", adding this was not the case.

"As clearly stated in GKN's announcement released on 12 January, the timing of the separation will be determined by the need to maximise the economic benefits and minimise the costs associated with separation," GKN said. ($1 = 0.7238 pounds) (Reporting by Noor Zainab Hussain in Bengaluru and Paul Sandle in London; Editing by Alexander Smith)