Melrose puts GKN in play ....

Friday, Jan 12 2018 by
7

Couple of interesting RNS this morning. GKN (LON:GKN) trading statement with a rebuttal of an unsolicited cash and shares offer by specialist engineering restructurer Melrose Industries (LON:MRO) valuing GKN (LON:GKN) at 405p followed by a confirmation from Melrose Industries (LON:MRO) of their interest.

https://www.investegate.co.uk/gkn-plc--gkn-/prn/statement-re-possible-offer/20180112075900P78C9/

https://www.investegate.co.uk/melrose-industries--mro-/rns/response-to-statement-re-possible-offer/201801121021417437B/

Noteworthy that both shares have gone up (increasing the value of the Melrose Industries (LON:MRO) paper in the offer to GKN (LON:GKN) shareholders). Also, it’s a big bite for Melrose Industries (LON:MRO) and will give GKN shareholders a majority 57% in the new company. Doesn’t look to be a knock out bid at this stage so may see the ante increased and/or another bidder coming to the party.

(I hold Melrose Industries (LON:MRO) shares).

Gus.


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GKN plc is a global engineering company. The Company is engaged in the design, manufacture and service of systems and components for original equipment manufacturers. The Company operates in four segments: GKN Aerospace, GKN Driveline, GKN Powder Metallurgy and GKN Land Systems. The GKN Aerospace segment is a supplier of airframe and engine structures, landing gear, electrical interconnection systems, transparencies and aftermarket services. The GKN Aerospace segment is a supplier of airframe and engine structures, landing gear, electrical interconnection systems, transparencies and aftermarket services. The GKN Powder Metallurgy segment is a manufacturer of sintered components and a producer of metal powder. The GKN Land Systems segment is a supplier of power management products and services. It designs, manufactures and supplies products and services for the agricultural, construction and utility vehicle markets and industrial segments. more »

LSE Price
482.4p
Change
1.4%
Mkt Cap (£m)
8,327
P/E (fwd)
14.3
Yield (fwd)
2.1

Melrose Industries PLC is a United Kingdom-based company that is engaged in buying manufacturing businesses. The Company’s businesses include Nortek and Brush Turbogenerators. It operates through four segments: Energy, which includes the Brush business that is engaged in supplying energy industrial products; Air Management, which includes the Air Quality & Home Solutions business that manufactures ventilation products and the Heating, Ventilation & Air Conditioning business that manufactures and sells split-system and packaged air conditioners, heat pumps, furnaces, air handlers and parts; Security and Smart Technology, which includes the Security & Control business along with the Core Brands and GTO Access Systems businesses; Ergonomics, which includes the Ergotron business that manufactures and distributes products designed with ergonomic features including wall mounts, carts, arms, desk mounts, and stands that attach to or support display devices. more »

LSE Price
240.8p
Change
-0.5%
Mkt Cap (£m)
11,336
P/E (fwd)
22.4
Yield (fwd)
1.8



  Is GKN fundamentally strong or weak? Find out More »


51 Posts on this Thread show/hide all

JohnEustace 9th Mar 32 of 51
2

One minute GKN are trying to wrap themselves in the Union Jack to get politicians to save them, the next they’re selling half the business to the Americans. Dana probably can’t believe their luck.

I wouldn’t trust GKN senior management to run a corner shop on this evidence.

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gus 1065 10th Mar 33 of 51

Melrose Industries (LON:MRO) response to the GKN (LON:GKN) announcement. Seems to be largely a response aimed at the PI about the practicalities of ending up with a substantial chunk of shares in a US listed, owned and run company. Presumably the institutional investors have less practical issues but can see through the senior management self-interest in their own job preservation as per aflash’s post #32. Perversely, Melrose Industries (LON:MRO) have a track record of empowering the existing second tier management to run the businesses they acquire while they run the overall group strategy. In their position and if I thought I was any good at my job I’d be hoping Melrose Industries (LON:MRO) come through.

https://www.investegate.co.uk/melrose-industries--mro-/rns/statement-re-gkn-announcement/201803091701293262H/

Interesting share price reaction. Both went down a bit initially but ended up about 3-4% on the day. My read is by jumping into bed with Dana, GKN (LON:GKN) have shots themselves in the foot by giving up the claimed moral high ground/best chance of a defence by ponying up with UK politicians over jobs and strategic interest preservation. Perhaps by making the new entity a US company they hope the Trump cavalry will come to the rescue if there ends up being a trade war!

Gus.

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gus 1065 10th Mar 34 of 51

In reply to Cisk, post #31

Hi Cisk.

I think the CEO, Anne Stephens, is little more than a figurehead puppet for the Chairman, Michael Turner, who has a reputation for being “ combative”. Both in their late 60’s, I suspect their defence against the Melrose bid is as much about ego (typical “not invented here” syndrome) as it is about having the appetite and stamina to spend the next five years turning the company around with their vision for a new corporate strategy. They may yet see off the Scots invaders but even if they don’t there is presumably the promise of a generous pay off to featherbed their retirement if and when they are put or to grass. Heads they win, ...... tails they win too.

Gus.

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gus 1065 12th Mar 35 of 51
2

As mooted over the weekend in the press, Melrose Industries (LON:MRO) has this morning increased its now full and final offer for GKN (LON:GKN) by increasing the GKN share to 60% of the combined business. Now valued at 467p.  As you’d expect, no punches pulled in the Melrose comments about the strength of their own bid and paucity and inconsistency of the GKN defence.

https://www.investegate.co.uk/melrose-industries--mro-/rns/increased-and-final-offer-for-gkn-plc/201803120700063430H/

Interesting to see they’ve gone “full and final” ahead of GKN publishing their defence document due this week. Deadline for company vote is 29th March.  Now await GKN response and the lead up to the vote.

Gus.

Edit: Just like buses, the GKN (LON:GKN) defence letter to the original Melrose Industries (LON:MRO) was also released at 7.00am this morning.

https://www.investegate.co.uk/gkn-plc--gkn-/rns/publication-of-second-response-circular/201803120700073401H/

Somewhat superseded by the Melrose Industries (LON:MRO) release although I suspect the defence against the revised offer will be the same, i.e. the offer undervalues GKN and should be rejected in favour of our own plans.

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JohnEustace 12th Mar 36 of 51

Now the Melrose offer is final, are GKN shareholders here inclined to accept?

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aflash 12th Mar 37 of 51

Subdued price reaction.
Market does not seem convinced MRO will succeed.
I have added .
Reply to John Eustace is Yes.

For my own statistical purposes and maybe of interest after Post #3:
Bought 306p before the offer, Sold 417p on the announcement.
Bought back 408p Feb6 but a week later it was 398p.
Got my money back at 439p on Feb 28.
Bought March6 420ish.
Added 434p today.

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gus 1065 12th Mar 38 of 51
1

In reply to JohnEustace, post #36

Hi JE.

As a holder of both I have accepted the offer (indeed, I’d already accepted it on the original terms last week). Given I hold both in roughly equal amounts not too bothered about today’s increase as it simply moves the chairs around on deck.

Reasons? I think the Melrose Industries (LON:MRO) management are much better equipped to maximise the medium term value from the business and have been far more impressed by their plans than the GKN (LON:GKN) defence approach of “anyone but b****dy Melrose”. Anne Stephens comes across as a rabbit in the headlights while Chairman Mike Turner has been there a decade presiding over the serial cock-ups that have brought the opportunity for this takeover about. Pretty cut and dried for me as to which is the better management team.

The putative offer to sell part of the business for shares in a US company with a dubious track record was the final nail in the coffin for me. Completely undermines the original GKN (LON:GKN) defence of preserving a strategic UK engineering company while giving me the headache of trying to find a cost effective way of holding US shares should I decide to hold and potentially creating a material tax bill on the distribution. (Had this when Vodafone (LON:VOD) spun out Verizon shares a few years back). Still waiting to hear from our politician friends why they think existing GKN management’s plans offer better prospects for UK job security and favourable pensioner consideration. (If in doubt, check out how Kraft seem to have carved up the Cadbury’s business).

Gus.

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gus 1065 12th Mar 39 of 51
1

Just to complete the set, here is the GKN rejection RNS for the revised offer made this morning.

https://www.investegate.co.uk/gkn-plc/gkn/rejection-of-melrose-s-revised-and-final-offer/201803121525344621H/?fe=1&utm_source=FE%20Investegate%20Alerts&utm_medium=Email&utm_content=Announcement%20Alert%20Mail&utm_campaign=GKN%20PLC%20Alert

Probably not the final salvo from either side - expect a war of words in the media over the next couple of weeks.

Gus.

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Howard Marx 14th Mar 40 of 51
2

Airbus have effectively ended this deal.

Melrose will now surely focus elsewhere.

From the FT:

"GKN’s single biggest customer, Airbus, said it would be “practically impossible” to give new work to the aerospace and automotive engineering group if Melrose Industries succeeded in its hostile £7.6bn takeover bid.

Tom Williams, chief operating officer of Airbus’s commercial aircraft division, told the Financial Times the possible change in ownership at one of the European aircraft maker’s most important suppliers was troubling because a turnround specialist would be too focused on the short term.

“The nature of our industry is one that requires a commitment to long-term investment and strategic vision,” Mr Williams said. “The industry does not lend itself to shorter-term financial investment which naturally reduces R&D budgets and limits vital innovation.”

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aflash 15th Mar 41 of 51

Thank-you Howard Marx. The price was saying something similar. For the record I cut half my position in GKN today.

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gus 1065 15th Mar 42 of 51
3

Smacks of a mate’s put up job behind the scenes from one fat cat corporate executive to another (probably I’m in denial which one of the many behavioural biases I have) with a sound bite paying little attention to the underlying facts (i.e. Melrose tend to pass on the businesses they buy in better shape than when they pick them up). Presumably Melrose Industries (LON:MRO) will say as much today but ultimately now comes down to the shareholder vote.

Will watch the share price action today with interest. If the news is a killer to the bid, I’d expect GKN (LON:GKN) to fall and possibly Melrose Industries (LON:MRO) to rise as the hedgies unwind their long/short strategies (but then again, forecasts are made to go wrong).

Gus.

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gus 1065 15th Mar 43 of 51
1

In reply to gus 1065, post #42

Share prices moved a little today as per previous post (GKN down 1.7%, Melrose up 0.7%) suggesting a relatively weak agreement that the Airbus linked statement makes the bid marginally less likely to succeed but is not, perhaps, the killer blow it might have been. Also noted in today’s press (Telegraph) that Vince Cable has woken up to the fact that the Dana “white knight” merger might lead to job losses at the GKN Redditch HQ.

More of the same to come from both sides .... I suspect other “establishment” talking heads are being lined up by both sides to kick the other side’s plans. Be nice to see some positive spin being put on things by either team for once.

Gus.

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gus 1065 19th Mar 44 of 51
2

Two more salvos this morning, one from each side. Starting to feel like the eve of a General Election. Both sides making more and more promises (hostages to fortune) while kicking holes in the nasty opposition. More to come over the next couple of weeks. At least the 29th March deadline (hopefully) brings it all to a conclusion.

https://www.investegate.co.uk/gkn-plc--gkn-/rns/combined-dana-and-gkn-driveline-business-listing/201803190705010702I/

https://www.investegate.co.uk/melrose-industries--mro-/rns/statement-re-final-offer-for-gkn-plc/201803190700060707I/

Possibly demonstrates why we have so few attempts at hostile takeovers in the UK anymore - as investors we seem to be presented with two polar opposite views with no realistic way of arbitrating the merits of either side. At least with the usual recommended deal, a consensus is presented to shareholders on a take it or leave it basis.

Gus.


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gus 1065 29th Mar 45 of 51
1

Having spared the thread the various salvos from the two sides over the past week, the people that really count exercised their votes today and came out 52:48 in favour of the takeover. Similar ratio to another recent vote beginning with “B” - just hope this one doesn’t take quite so long to put in place. Quite remarkable given the paucity of hostile takeover successes in recent times so I think we’re seeing history of a rare sort being made here.

https://www.investegate.co.uk/melrose-industries--mro-/rns/statement-re-offer/201803291600104810J/

https://www.investegate.co.uk/gkn-plc--gkn-/rns/recommendation-to-accept-offer/201803291646334909J/


The real work to make the transaction work is only just getting started.

Gus.

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aflash 29th Mar 46 of 51

It was in the price most of the afternoon.

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sharmvr 29th Mar 47 of 51
1

In reply to gus 1065, post #45

What vote with a B? :)

Personally, I am grateful that the owners of capital still believe in Capitalism and competitive exchange! Helps that I took a small stake in GKN yesterday - ready for my next merger arbitrage trade!!

That said, I think there will be a few people to authorise, so whilst not quite Brexit, will take a while to get over the line.
And as you rightly point out, the real work is yet to begin

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Edward John Canham 29th Mar 48 of 51
2

In reply to gus 1065, post #45

Really quite pleased by this although I don't hold shares in either company.

GKN (LON:GKN) had a defense which involved asset stripping itself - there have been a few such scorched earth strategies in the past - if my memory serves most ended in tears.

I'd like Vince Cable (for one) to assess their actions here. Accused Melrose Industries (LON:MRO) of being an asset stripper - and then stayed quiet when GKN (LON:GKN) went down that road in their defense strategy to the extent that they were definitively selling 70% of the business and quite possibly 90%.

This will be safer in the hands of Melrose Industries (LON:MRO) than a newly formed GKN (LON:GKN) team which seemed to have only one plan - sell everything!

And politicians - this is not a company which needs to be protected in the national interest - most of it is abroad - its defense contribution is minuscule.

Phil

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gus 1065 17th Apr 49 of 51

Offer update from Melrose Industries (LON:MRO) this morning. Now at just short of 82% acceptances on their bid giving them pretty much effective control (not quite at the 90% that would allow them to compulsorily close out 100% control) but can de facto run the company in most material respects. Pressing to go “wholly unconditional” on April 19th and de list GKN (LON:GKN) shares by 21st May.

https://www.investegate.co.uk/melrose-industries--mro-/rns/statement-re-offer-update/201804170700050977L/

Seems to have gone quiet on the “political” front (since the shareholder vote politicians/unions/GKN customers etc. appear to have moved on to the next sound bite). Melrose just seems to be getting on with it. Wonder if today’s announcement will bring it back into focus?

Gus.

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gus 1065 19th Apr 50 of 51

Game over. The fat lady’s singing .....

https://www.investegate.co.uk/melrose-industries--mro-/rns/offer-for-gkn-unconditional-in-all-respects/201804190806054404L/

https://www.investegate.co.uk/gkn-plc--gkn-/prn/directorate-change-and-cancellation-of-listing/20180419081822PDE5E/

I wonder if this will be the last of its kind - a hostile takeover by a “minnow” of a listed FTSE 100 company?

Gus.

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JohnEustace 19th Apr 51 of 51

I took today’s announcements as implying that the final independent quarter trading for GKN is going to be poor but that Melrose still believe they can fix it.

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