Engineering giant GKN gears up for US merger

FTSE 100 group GKN, led by chief executive Anne Stevens is fighting to fend off a £7.4billion hostile bid from turnaround specialist Melrose Industries, which it has attacked as opportunistic and fundamentally undervaluing the business.

It aims to win over shareholders by pledging to return up to £2.5billion over the next three years and has set out plans to demerge its aerospace and automotive operations into separately listed businesses by mid-2019.

It has received “a number of approaches” about its businesses and has “engaged with discussions with Dana regarding a potential combination with GKN Driveline that would be effected mainly in equity”.

It said a combination with Dana could provide greater value to shareholders than its own Project Boost transformation programme focused on improving cash flow and profit margins.

GKN and Dana both said there is no certainty that ongoing discussions would lead to a deal.

Dana filed for bankruptcy in 2006 as suppliers found themselves squeezed by spending cutbacks at US carmakers. It came out of protection in 2008.

Employing 30,000 people, it posted sales of $7.2billion (£5.2billion) last year.

Panmure Gordon analyst, Sanjay Jha, doubted whether GKN shareholders would “accept paper from a US automotive company given the history of bankruptcies there”.

He added: “It is even harder to imagine how UK politicians who are so worried about losing ‘strategic’ jobs in the West Midlands will approve a sale to a foreign auto parts manufacturer which filed for Chapter 11 in 2006, two years before the financial crisis.”

Melrose argues that an improvement at GKN can only be driven with “new leadership and fresh thinking”, with GKN investors taking a majority stake in a “UK manufacturing powerhouse”.

A Melrose spokeswoman said: “We have said all along that this is a decision about which management team can deliver value and long term growth. Today’s news appears to show that GKN doesn’t trust itself to do so.

“Melrose stands ready to provide the better option for shareholders and UK plc.”