March 29, 2018 / 7:50 PM / a month ago

Melrose wins UK engineer GKN with $11 billion hostile bid

LONDON (Reuters) - Melrose Industries (MRON.L) has narrowly clinched an 8 billion-pound ($11 billion) takeover of British engineer GKN (GKN.L), winning an acrimonious three-month battle for control of the FTSE 100 company.

FILE PHOTO: Branding is seen outside the headquarters of GKN in Redditch, Britain, March 12, 2018. REUTERS/Hannah McKay/File Photo

The UK-based turnaround specialist said on Thursday that 52.4 percent of GKN’s shareholders had accepted its hostile cash-and-shares offer by the time the deadline for a deal expired at 1200 GMT.

That just surpassed the acceptance threshold of 50 percent plus one share that Melrose had set for the takeover of the aerospace and automotive parts supplier.

It means Melrose has triumphed with Britain’s biggest hostile bid since Kraft pounced on confectionery giant Cadbury in 2009.

GKN supplies parts to carmakers such as Volkswagen, components to aircraft including the Eurofighter Typhoon and produced Spitfires during the Second World War.

Given its status as a mainstay of British engineering, Melrose’s bid has attracted close scrutiny from politicians.

The turnaround specialist’s motto is “buy, improve, sell”, provoking fears among some lawmakers about the security of GKN’s 6,000 British employees and the future of the engineer’s pension schemes.

It also raised concerns Melrose could in the future sell GKN’s aerospace business, which is involved in defence programmes, on to an overseas buyer in a move that might have implications for national security.

Seeking to quell such worries, Melrose made a series of legally binding commitments about GKN’s future this week. They included pledges on research and development expenditure and a promise the combined firm would remain headquartered in Britain.

Business minister Greg Clark said on Thursday that Melrose is “bound to honour” those commitments.

“Now that shareholders have made their decision the government has a statutory responsibility to consider whether the merger in its proposed final form gives rise to public interest concerns,” he added.

“This assessment will be made by the appropriate authorities and the conclusion set out in due course.”

Rebecca Long-Bailey, business spokeswoman for the main opposition Labour Party, said the government had “acted too little, too late.”

“They have allowed a takeover to happen which may harm both our national security and industrial strategy,” she said.

Meanwhile, the Committee on Foreign Investment in the United States, which reviews takeovers for possible security concerns, is yet to give its verdict on the deal.

FILE PHOTO: Branding is seen outside the headquarters of GKN in Redditch, Britain, March 12, 2018. REUTERS/Hannah McKay/File Photo

SHARES RISE

GKN, led by chief executive Anne Stevens, had put up a staunch defence against the unsolicited offer that included striking a separate deal to merge its autos division with U.S. firm Dana (DAN.N)

That tie-up was dependent on the failure of the Melrose takeover and Dana said its deal was now “unlikely” to proceed.

The trustees of GKN’s pension schemes said they were looking forward to working with Melrose.

“We are delighted and grateful to have received support from GKN shareholders for our plan to create a UK industrial powerhouse with a market capitalisation of over 10 billion pounds and a tremendous future,” said Christopher Miller, Melrose’s chairman.

Melrose added that it urged hold-out GKN shareholders to accept its bid, which will now stay open. It expects to declare the offer unconditional by April 19.

Melrose shares closed up 3.4 percent at 231 pence, lifting the value of its offer for the engineer to about 471.4 pence per GKN share. That values GKN as a whole at about 8 billion pounds.

Shares in GKN finished up 9.5 percent at 463 pence.

Despite Melrose’s victory, GKN said it still believed the bid “fundamentally undervalues” its business.

However, given Melrose will take control of the engineer when the offer is declared unconditional, GKN said it now recommended its shareholders accept the bid.

Melrose plans to delist the company if it secures acceptances from 75 percent, which would leave investors who have still not backed the offer with a stake in an unlisted business.

The statement from GKN did not include a comment from either Stevens or Chairman Mike Turner, who have both fiercely opposed Melrose since it first made an approach in early January and quickly became embroiled in a war of words with the bidder.

Meanwhile, the chief executive of Ohio-based Dana, James Kamsickas, said he was disappointed by the outcome. He added the U.S. firm still believed it was “the best owner and operator” of GKN’s auto parts business.

    It is possible that Dana could revive a deal for the division with Melrose in the future, a source close to GKN said.

    Reporting by Ben Martin; Editing by Adrian Croft and Mark Potter

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