Melrose loses Takeover Panel concession on GKN
Advice could have encouraged bidder to move quickly to declare offer unconditional
The UK takeover regulator has withdrawn advice that could have shortened the timeframe for GKN to make its case against Melrose’s hostile £7bn takeover bid.
Melrose revealed in its offer document last week that the Takeover Panel had reversed an earlier decision to allow the bidder extra time to fulfil conditions concerning regulatory approval. Melrose appeared to be looking to accelerate the bid process by publishing its offer document on the earliest day allowed under the panel’s rules, the regulator indicated.
The panel’s advance concession could have encouraged the bidder to move quickly to declare its offer unconditional, without worrying about the deadline for regulatory approval. Such a tactic would have reduced the time for GKN to make its defence, three people with knowledge of the situation said.
“As this offer document has been published on an expedited basis, the panel executive has withdrawn the guidance communicated to Melrose at the time of the announcement,” the company’s offer document said. The panel will now take a view at the end of the normal timetable as to whether to extend the deadline.
One M&A banker familiar with the Takeover Panel process said: “The original announcement was somewhat pushy by Melrose. The natural reason is that they want to give the target less time to develop their defence before shareholders have to make a decision.”
Speed could be important if Melrose wants to avoid having to increase its offer, which at Friday’s close valued each GKN share at 409p. GKN shares closed above the offer at 415p.
The Takeover Panel’s previous guidance at the beginning of January, published in documents supporting Melrose’s firm offer on January 12, had been that the bidder would receive an extension.
Under normal rules and without the extension, Melrose’s bid would have to lapse three weeks after going unconditional if it had not yet won regulatory approval, or else it would have to waive the conditions. The offer is conditional on approval of authorities in the US, where it supplies military programmes, as well as in Europe.
Melrose dismissed the suggestion that it had sought the panel’s prior approval for an extension to step up pressure on GKN. It had requested guidance to ensure there would be flexibility if the protracted regulatory process could not be resolved in time.
“Without that we would not have gone ahead with the bid,” a spokesman said.
Since then, however, the regulatory approval process appeared to be proceeding in line with the UK timetable, he said. “We don’t need [the extension] . . . because our process going in a timely manner. We are aware that the panel does have a mechanism to extend the timetable if needed and as far as we are aware always done so if needed.”
GKN declined to comment.
Melrose has surprised many UK takeover experts with the speed of its approach for GKN. Having had its first offer rejected in early January, Melrose returned days later with a formal hostile bid without any negotiations or price increase — a rare event in recent years.
Analysts said Melrose was moving with haste to prevent rivals and because it was confident it could secure enough shareholder support if it pressed ahead quickly.
GKN is preparing a detailed defence plan, which must be published by February 16. The aerospace and automotive supplier’s management is fighting to win credibility against Melrose’s established record of buying, turning round and selling on unloved industrial companies. Investors have criticised the company’s record of sluggish margin growth and cash generation.
Although many investors believe GKN’s management has a challenge to fend Melrose off, some do want a higher offer. That meant GKN needed time to explain to shareholders what the current financial state of the company was, one leading investor said.
“What has come across [in meetings] was that their recovery plan was being worked on quite hard in the last two three months of last year,” he said. “Right now there is slight sense of inevitability that GKN will go to Melrose at a level just a little higher. But I suspect the core mature bit of GKN is already a better business than it looks from headline numbers.”