GKN to sell off assets and return £2.5bn to shareholders in bid to fight off Melrose takeover
Engineering giant GKN said it will sell off parts of its business and return £2.5 billion in cash to its shareholders over the next three years.
The plans are part of its defence against a £7.4 billion hostile takeover bid from Melrose Industries.
GKN's new strategy and transformation plan includes the sale of various divisions over the next 12-18 months.
Last month GKN rejected the bid from Melrose saying it "fundamentally undervalued" the firm.
The firm has a major operation in Telford and employs about 340 people at Hadley Park making structural parts including wheels.
GKN chief executive Anne Stevens said: "The new strategy brings clarity, accountability and focus to GKN's world class businesses and will allow the group to attain world class financial performance."
"Too often we pursued growth at the expense of returns, this will no longer be the case. The new strategy brings discipline, both financial and operational."
However Melrose has argued that it could "deliver significantly greater benefits" to GKN's shareholders than the current management team.
GKN is fighting to convince investors to reject Melrose’s offer of 1.49 shares and 81p for every one of GKN’s shares. It has argued that accepting Melrose’s offer would leave GKN shareholders with just 57 per cent of the benefit of any turnround, against 100 per cent of the proceeds should they reject the bid. Investors, however, have demanded greater detail on the new management’s strategy, questioning whether after years of disappointment, the group will deliver.
GKN said its standalone strategy would deliver £340 million in annual cash benefits from the end of 2020.
It said it also intended to make significant disposals in the next 12-18 months, including the sale of powder metallurgy, accounting for a significant proportion of the proceeds that would be returned to investors. Finally, GKN promised it would pay out an average of 50 per cent of free cash flow in dividends over the next three years.
The plan will come at a cost however. GKN said restructuring charges would come to £450 million. A third of this would be incurred in 2018, roughly 44 per cent in 2019 and the remainder in 2020.
Of this, approximately £134 million would be invested in digitising manufacturing processes.
In the announcement the group broke down margins in each of the divisions, and set targets for 2020. It expects aerospace operating margins to rise from 10.3 per cent last year to over 14 per cent, in driveline from 7.5 to 9.5 per cent, with the group return rising from 7.4 to more than 10.5 per cent.
These improvements exclude the impact of the £112 million charge announced last year as a result of problems with understated inventory in the US aerospace business.
It also identified non-core businesses including the US aerostructures division and the automotive wheels unit, among others.
A Melrose spokeswoman said today: "GKN's document this morning is long on adjectives and promises but desperately short on detail. It is a stark admission of management failure combined with a series of promises which fall well short of what Melrose is proposing.
"Today's 'killer fact' is that GKN is waving the prospect of a £2.5 billion cash return to shareholders 'over the next three years' funded mostly by a sale of Powder Metallurgy.
"Melrose has already added £1.3 billion to the value of GKN and proposes a further £1.4 billion on Day One.
"We would keep Powder Metallurgy for further improvement and use our proven skills to transform the core businesses of GKN while delivering growth and shareholder return at the fast-growing Nortek.
"In terms of value, the two proposals are worlds apart."