Melrose says it can add value to Telford-based engineering giant GKN

GKN surprised the markets on Friday with an announcement that it had received an audacious bid from Alcester-based Melrose, which valued its business at around £7 billion.

GKN, which has a major operation in Telford and employs about 340 people at Hadley Park making structural parts including wheels, has shunned the approach and in a statement issued without Melrose's consent said the offer significantly undervalued the company.

The approach had an instant impact on GKN's share price, which rose by 27 per cent in early trading.

In its own statement on Friday, Melrose confirmed it had made the approach, which was to acquire the entire issued and to be issued share capital of GKN. The bold move resulted in an immediate hike in Melrose's own shares – although this fell back in later trading.

Melrose had submitted an offer based on a payment of 405p for each GKN share, with 80 per cent of this coming in the form of new Melrose shares and the remaining 20 per cent in cash.

It said this represented 1.49 new Melrose shares and 81p in cash for each GKN share and would result in GKN shareholders owning approximately 57 per cent of the enlarged group. The terms represent a premium of approximately 24 per cent over the closing share price of GKN on January 5, 2018, the last business day prior to the approach.

The cash element of the bid was to have been funded by a new debt facility.

Melrose said it would be commencing a series of shareholder meetings to discuss its acquisition proposal and affirm why it is an appropriate suitor for the business.

In a presentation to the meetings, Melrose describes GKN's current position as "an overly complex and under-managed organisation without focus" and one which needs "a fundamental change of culture and leadership".

"The lost opportunity is despite GKN having spent approximately £3.2bn on capex and acquisitions between 2012 and 2016," Melrose said.

"Melrose has stated that it expects to re-energise and re-purpose GKN's operations to enable them to exceed GKN's own top-end group trading margin target of 10 per cent. Melrose intends to significantly improve GKN's businesses as opposed to a hasty break up."

Melrose had said on Friday that it believed there would be significant operational and commercial benefits arising from its ownership of GKN's businesses.

In its own statement on Friday, GKN had confirmed its intention to separate its aerospace and automotive divisions.