By Mark Fairlie
The British-based investment company, Melrose Industries, has raised its takeover bid for GKN to £8.1bn.
The revised offer represents the latest escalation in the battle for the future of the firm as, at the same time, political controversy surrounding the proposed takeover has prompted some MPs to call for the bid to be blocked altogether.
Who is GKN?
GKN (Guest, Keen and Nettlefolds), launched in its original form in 1759, is an automotive and aerospace components manufacturer with a last-reported operating revenue of nearly £10bn.
It employs 58,000 people including 6,000 in the UK, according to the BBC, and supplies car manufacturers and airline companies including Boeing and Airbus. Earlier this year, the company issued a profit warning over what the BBC described as “mystery charges”. These “two significant external claims” were “commercially sensitive” and the company gave no more details to its shareholders or the City.
In addition to the claims, sales had unexpectedly slowed and the combination of these two factors led Nigel Stein, GKN’s chief executive, to describe the company’s current situation as feeling like “walking down the street and being mugged”.
Who is Melrose?
Melrose Industries, founded in 2003 and a member of the FTSE 250 Index, is an investment company targeting for purchase businesses it perceives as “underperforming”.
Since its founding, according to Wikipedia, it has acquired amongst others:
- Dynacast, a diecast parts and components manufacturer,
- McKechnie Aerospace
- FKI (an engineering business)
It has a turnover of £1.8bn a year through its companies and employs 12,500 people, according to the Telegraph.
Melrose wishes to purchase GKN because it believes the current management does not have the ability to allow the business to reach its full potential. After a purchase is completed, Melrose’s mission is to improve GKN’s business performance with a view to selling the company later on to maximise the return to shareholders.
Events to date
GKN has firmly rebuffed all advances made so far by Melrose, including rejecting attempts to fix a meeting between the boards of the two companies, according to the FT.
Melrose’s original bid valued GKN at 415p a share, below GKN’s Friday afternoon share price of 435p.
Following the initial announcement of the bid, Parliament summoned the management of both businesses to appear in front of the business, energy, and industrial strategy committee. This followed 16 MPs from across the political divide writing to the Business Secretary asking him to stop the takeover.
MPs were seeking reassurances from both sides about the impact on both jobs and pensions of GKN continuing to operate independently or as a subsidiary of Melrose.
As part of its defence, GNK’s CFO told MPs that the battle for ownership was a “case of long-term capitalism versus short-term capitalism…(we’re) investing for our grandchildren – that’s what we’ve been doing”, as reported in the FT.
Simon Peckham, Melrose’s chief executive, said that GKN was
“a great British business (which) lists its way, partly because it is managed. (We would) put power back from the head office into the individual businesses”.
On Monday 12th March, Melrose increased its bid to 467p per share, valuing the business at £8.1bn. It told the BBC that the offer was final and would not be increased “under any circumstances”.