EXTRA: GKN Rejects Melrose Proposal, Launches Improvement Programme

GKN shares took off on the news

GKN shares took off on the news

GKN, the FTSE 100 aerospace and automotive company which issued a shock profit warning in November, has rejected an unsolicited £7bn approach from rival Melrose and unveiled plans to split in two.

The maker of components used in the Black Hawk helicopter and by automakers such as Volkswagen and Ford cut its profit outlook in October, hurt by a writedown at its US aerospace division. GKN had been looking for a new chief after Kevin Cummings, who had been due to take on the role, was dismissed following October profit warning sparked by problems in its aerospace division.

After becoming interim chief executive in late 2017, Anne Stevens has been permanently appointed to the post.

GKN, which in October previous year said business performance was not meeting management expectations, has now chose to separate its aerospace and automotive division and launched a a so-called "Project Boost" performance improvement programmeme.

The bid implied an exchange ratio of 1.49 new Melrose shares for each GKN share plus 81 pence in cash per GKN share. Shares opened more than 20% higher at 396p and continued rising Friday morning, hitting 420p, the highest its shares have traded since August 2007. A source familiar with the matter said Melrose planned to continue to pursue its bid. But Melrose shares have subsequently climbed 7%, lifting the value of the offer to 422p a share.

It said the offer was "entirely opportunistic" and "fundamentally undervalues the company and its prospects".

GKN - Offer rejected, Automotive and Aerospace to separate
GKN shares surge as it rejects a takeover offer and reveals it will split in two

It adds that all product segments will have "stretching targets" and that "a much stronger performance and accountability culture will be instilled throughout the business".

The site produces composite structures and complex machine parts for aircraft such as the Black Hawk helicopter.

It said both businesses would benefit from being separate companies with distinct investment profiles and capital allocation policies.

While that plan does not yet entail a full separate listing, it could make one possible in the future. "After a successful turnaround of The Ford Motor Company's businesses in Mexico, Canada and South America, she was appointed as chief operating officer for the Americas where she developed the transformation plan for Ford's U.S. business".

"The money to be made from a split is likely to have been what drew turnaround specialist Melrose to the table in the first place - the challenge for newly confirmed CEO Anne Stevens is to deliver a better result for shareholders than the 405p she turned down today".

GKN was valued at 5.7 billion pounds at the close of Thursday.

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