* GKN sets target to split up businesses in mid-2019
* Seeking to fend off 7 billion pound Melrose bid
* Melrose has until March 19 to sweeten offer (Updates with comment from Melrose and updates shares)
LONDON, Feb 27 (Reuters) - British engineering group GKN has set a deadline to break itself up by the middle of next year to help boost value for shareholders as it seeks to stave off a 7 billion-pound hostile bid from Melrose Industries .
The FTSE 100 company said on Tuesday that a demerger of its main aerospace and automotive parts divisions into separately listed companies would take place in mid-2019, a plan that it hopes will convince its investors to reject the cash and shares approach made by turnaround specialist Melrose.
"What this will show our shareholders is the full value of a sum-of-the-parts, which up until now we believe has been obscured by the conglomerate structure," said Anne Stevens, GKN's chief executive.
GKN first pledged to split itself up last month after it rejected the unsolicited approach from Melrose, which Stevens has repeatedly dismissed as derisory.
GKN has also promised to hand back 2.5 billion pounds ($3.5 billion) to shareholders over the next three years and will sell assets, including its powder metallurgy business, to help free up cash.
A mainstay of the British engineering sector, GKN makes parts for the Boeing 737 jet, Black Hawk helicopter and components for Volkswagen and Ford cars. It employs more than 56,000 people worldwide, including about 6,000 in Britain.
GKN shares slipped 0.4 percent to 428.3 pence at 1220 GMT. The current value of the Melrose bid, which moves with its share price, is about 415 pence per GKN share.
Melrose swooped on GKN in January after the engineering group had been left vulnerable following two profit warnings in October and November, which were sparked by writedowns at its U.S. aerospace division and sent its shares tumbling.
GKN said in annual results on Tuesday that the 112 million-pound charge it had booked as it result of its review of its North American aerospace business had knocked its adjusted profits before tax by 16 percent to 572 million pounds compared with a year earlier.
On a statutory basis, its pre-tax profits jumped to 658 million pounds from 292 million pounds in 2016 as a result of favorable currency movements on GKN's hedge book. Sales climbed 10 percent to 9.7 billion pounds.
Melrose has a motto of "buy, improve, sell" and its bid for GKN, which makes components for the Eurofighter Typhoon as part of its defense business, has sparked worries among some politicians that it could eventually sell parts of the company to a foreign acquirer.
Gavin Williamson, Britain's defense secretary, told lawmakers last week that he had written to business secretary Greg Clark to raise "serious concerns" about a potential Melrose takeover of GKN.
The engineer's own plan to demerge could also prompt a bid for one of its divisions from an overseas acquirer.
"We're not trying to use the government one way or another, that's up to them," GKN Finance Director Jos Sclater said on Tuesday when asked about potential for the UK to intervene to block the takeover on national security grounds.
Under Britain's takeover rules, Melrose has until March 19 to improve the terms of the deal it is proposing.
Christopher Miller, Melrose's chairman, said on Tuesday that GKN was pursuing a "rushed plan" to demerge its automotive and aerospace divisions.
"At the heart of this is a plea for the incumbent team to embark on an unproven and risky plan which we believe is wrong for all GKN stakeholders and UK Plc as a whole," he said in a statement. ($1 = 0.7165 pounds) (Reporting by Ben Martin; editing by Louise Heavens and Keith Weir)