Shareholders sitting pretty as GKN price rockets amid Melrose interest
If engineering firm GKN left it late to think about its future, then the same can be said of its shareholders.
Many waited until the very last minute to make up their minds on Melrose’s £8 billion bid last Thursday.
GKN's shareholders appear to be just one of the winners of the result of the hostile and closely-fought takeover battle, which could yet be blocked by government ministers on national security grounds.
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GKN has a site in Telford where it employs almost 400 people as well as other factories in the Midlands with around 1,000 workers.
Shareholders will now receive 465p per share, with £1.4bn of that in cash on completion.
That’s a higher price than GKN shares have traded at for more than 10 years and a 40 per cent increase on the price before Melrose’s initial approach was disclosed.
They will now share in 60 per cent of the upside of a combined GKN and Melrose, including any value realised from Melrose’s disposal of its Nortek business, which could come to £2.6bn.
The stock market's big winners this year have emerged from takeover battles, with GKN shares leaping by 46 per cent during the first quarter.
GKN was ticking over as a relatively unloved, under-performing engineer – until turnaround specialist Melrose came knocking.
Melrose makes its move
In January, Melrose made a cash-and-shares approach worth £7.9 billion, triggering a row about pensions, short-termism, management strategy and the ownership of a national asset that kept observers in suspense for months.
Prior to Melrose's offer, GKN shares were priced about 332p, which jumped to 420p following the approach.
Share prices then leapt again from 423p on the day before the result of the shareholder vote to 463p on the day itself.
Meanwhile, Melrose's share prices rose from 215p before its interest in GKN was announced, to about 227p following the announcement. Its share prices increased again on the deadline day.
GKN is one of Britain's oldest and biggest manufacturers. Listed on the FTSE 100 index of truly heavyweight pubic companies, it makes aircraft and car parts for customers including Boeing, Airbus and Ford and has a risk and revenue-sharing agreement over engines with Rolls-Royce.
Having been unanimously rejected by GKN, Melrose took its offer directly to shareholders and pitted its turnaround skills against the capabilities of its target's existing management.
Persistent and brutal
GKN, stung into action, accelerated a plan to spilt its aerospace assets from its automotive business, for which it lined up Dana, of the US, as a white knight bidder.
A row over pensions led Melrose to increase its commitment to shore up some of GKN's pension schemes.
It was a brutal, relentless, blow-after-blow fight and in the end it was Melrose that emerged victorious, sealing the deal in a close vote with the backing of 52.4 per cent of shareholders.
Changes at GKN are now expected to be announced in the coming days.
In a statement GKN said: "The board of GKN now intends to work with Melrose to ensure the success of the enlarged company, in the interests of all stakeholders, including employees, customers and shareholders."
Melrose chairman Christopher Miller added: "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 £10bn and a tremendous future.
"We are looking forward to working with GKN's talented workforce and to delivering for customers and all stakeholders. Melrose has made commitments as to investment in R&D, skills and people and we are very excited about putting these into action.
"Let me assure you that GKN is entering into very good hands.
"We would like to thank our shareholders for their continued support of the Melrose strategy thus far.
"We are full of enthusiasm as we begin this next stage of the Melrose story and look forward to creating substantial value for our shareholders, old and new."
Concerns
It has also emerged Melrose could be forced to sign legal agreements promising not to sell GKN's crucial aerospace division.
Defence Secretary Gavin Williamson, who expressed "serious" reservations in February, is said to be particularly concerned over sensitive contracts held by GKN.
Critics, including Telford & Wrekin Council, have urged Business Secretary Greg Clark to stop the takeover.
Telford & Wrekin Council leader Shaun Davies said: "The council has unanimously agreed, cross party, that the secretary of state should call this decision in and block it on the grounds of national security.
"We believe the work that GKN does in the defence sector is of strategic importance and the business model of the new owners would effectively asset strip GKN and put pensions and jobs at risk.
"These are well paid jobs and as a council we have supported businesses like GKN to stay in the borough but what is clear is the uncertainty around GKN not just in Telford but around the country."
Mr Clark is expected to listen to advice from the Ministry of Defence in the coming days and weeks before deciding whether to intervene.
