GKN promises quick cash for investors as its takeover battle comes to a head

  • GKN promised a quick cash handout for shareholders if they back an improved takeover offer for its auto business.
  • The offer is aimed at warding off a hostile bid for the whole company.
  • GKN wants to split off its auto unit and combine it with U.S. group Dana, leaving GKN focused on aerospace.

GKN promised on Monday a quick cash handout for shareholders if they back an improved takeover offer for its auto business, in a final role of the dice aimed at seeing off a hostile bid for the whole company.

In one of Britain's most tightly fought corporate battles for years, shareholders have until 1200 GMT on Thursday to support the hostile bid from turnaround specialist Melrose, or GKN's plan to split off its auto unit and combine it with U.S. group Dana, leaving GKN focused on aerospace.

Melrose's bid has so far split GKN shareholders, with two of the largest publicly coming out on opposite sides. Analysts predict the deal will go down to the wire.

On Monday, Dana said it would pay an additional $140 million in cash to GKN for its Driveline auto business.

In response, GKN said it would return up to 700 million pounds in cash to shareholders as soon as practicable, as part of an already announced 2.5 billion pound cash return programme from the Dana sale and the planned divestment of its powder metallurgy unit.

That compares with Melrose's offer of 81 pence in cash for each GKN share plus 1.69 new Melrose shares, which would hand shareholders 1.4 billion pounds and 60 percent of the enlarged Melrose — a bid worth 7.8 billion pounds in total.

Should they back GKN management's plan, GKN shareholders would end up with 47.25 percent of the enlarged Dana group, which would be listed in both the U.S. and London.

A mainstay of Britain's engineering sector, GKN makes parts for the U.S. aviation industry, such as the Boeing 737 jet and Black Hawk helicopter, as well as components for Volkswagen and Ford cars.

FILE PHOTO: UH-60A Black Hawk helicopters prepare to takeoff as the 82nd Aviation Brigade relocates in the desert during Operation Desert Shield. (photo by DOD)
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FILE PHOTO: UH-60A Black Hawk helicopters prepare to takeoff as the 82nd Aviation Brigade relocates in the desert during Operation Desert Shield. (photo by DOD)

Illustrating the bitter nature of the takeover battle, it featured on the front page of Britain's Daily Mail newspaper on Monday: "Don't let Vultures destroy a British colossus", it said, noting some shareholders did not have a long-term interest in the company that helped make Spitfire fighter aircraft in World War II.

Shareholders split

While the hostile bid has prompted criticism from politicians - concerned that after improving GKN, Melrose could break it up and sell parts to foreign buyers - the decision now rests with shareholders.

Elliott Advisors, which has a 3.8 percent interest, making it one of GKN's biggest shareholders, on Friday backed Melrose's deal, saying it did not trust GKN management to deliver the "profound" cultural shift needed to meet new targets while driving through two major asset sales.

Columbia Threadneedle, with a 3.4 percent stake according to Reuters data, has said it will reject Melrose's offer.

GKN said that following Dana's improved offer for its auto business it would receive $1.77 billion in cash after deducting $1 billion for the transfer of a pension deficit to the combined Dana-GKN Driveline group.

"We believe that the true value of GKN is over 5 pounds per share and that Melrose's final offer fundamentally undervalues your company and should be rejected," Chairman Mike Turner said.

The offer from Melrose, which has said its bid is final, meaning it cannot now improve the terms, values GKN at 451 pence per share in cash and shares, based on Melrose's share price on Monday. GKN's stock was trading at 430 pence at 0930 GMT.

In a separate statement, GKN was forced to retract comments made to Sunday newspapers in which it said it thought investors would back its plan. It said the comments had not been verified.