GKN sets out formal defence against Melrose
Board says ‘private equity-style’ bid from turnround group is ‘low price and high risk’
GKN, the UK engineering group battling a hostile takeover offer from turnround specialist Melrose, has published its formal pitch to shareholders to reject the bid calling it “low price and high risk”.
A day after spelling out its own plan for the business in a series of promises to investors to boost cash generation and revive flagging margins, GKN’s board set out its full defence against Melrose’s takeover offer and its argument for why GKN’s new management should be given a chance to deliver their vision for the company.
GKN criticises the “private equity-style” strategy it says Melrose will use to overhaul the company, characterising the “short-term business model” as “inappropriate for GKN”.
“There is no evidence that management has relationships with key customers such as Airbus, Boeing, Fiat Chrysler, Ford and VW,” the document continues.
“Furthermore, Melrose’s stated three-to-five-year exit strategy is not compatible with the long-term investment and technology horizons that are essential in GKN’s markets. Cars and aircraft are researched, designed, produced and serviced over several decades - your Board believes that a short term, private equity-style strategy is not the right way to provide sustained shareholder value in our sectors.”
Not only was Melrose trying to buy GKN on the cheap, GKN’s board added, it was doing so even by Melrose’s own standards:
The premium Melrose is offering is very low. On the basis of its most recent share price, Melrose claims its premium is 22 per cent. By comparison, precedent FTSE 100 takeovers have an average premium of 43 per cent. Melrose has also paid materially higher premiums in each of its prior public takeovers. In the case of FKI, Melrose’s only prior UK public takeover, the premium was 72 per cent.