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GKN to reorganise after rejecting takeover bid

UK aerostructures manufacturer GKN has rejected a takeover bid from turnaround specialist Melrose Industries and disclosed a plan to separate its aerospace and automotive activities as part of a two-year business-improvement plan.

GKN says Melrose's "preliminary and unsolicited" offer to purchase the entire shareholding was "entirely opportunistic", and that the terms "fundamentally undervalue the company and its prospects".

Under the proposal – which valued GKN at around £7 billion ($9.5 billion) – the shares would have been acquired with a combination of cash (20%) and new Melrose shares (80%). GKN shareholders would have ended up with a 57% stake in the combined business.

"The proposal would materially dilute the exposure of [our] shareholders to the meaningful upside opportunities that the board believes are present within the company," says GKN.

Melrose, by contrast, says the deal would deliver "significant operational and commercial benefits" and reverse "a history of existing GKN management not delivering on margin target".

Having submitted its proposal on 8 January, Melrose has until 9 February to indicate whether it wants to follow up with a firm offer for GKN.

Meantime, GKN believes that value for its shareholders will be "maximised" by its separation of its aerospace and automotive divisions in order to set "distinct strategic, operational and financial objectives for the [two] businesses, with clear focus, accountability and better-aligned incentive plans".

The timeframe has not be specified but will "maximise the economic benefits and minimise the costs", says GKN.

A two-year programme dubbed "Project Boost" has been launched to "significantly" improve performance across the business. GKN acknowledges that profit margins and cash generation have been "below expectations", despite a rise in sales.

The programme is aimed at optimising procurement, processes, productivity and capital allocation. "Portfolio rationalisation of our non-core product segments will also be a priority," says GKN.

It adds that all product segments will have "stretching targets" and that "a much stronger performance and accountability culture will be instilled throughout the business”.

After becoming interim chief executive in late 2017, Anne Stevens has been permanently appointed to the post. She has previously served as chief executive of speciality metals producer Carpenter Technology and as a senior executive at automotive manufacturer Ford.

"Anne Stevens has the track record to transform GKN," states chairman Mike Turner.

Stevens declares herself "confident that we can deliver more for our shareholders while improving what we do for our customers and supporting our employees".

Following fourth-quarter trading "in line with expectations", GKN foresees a full-year pre-tax profit "slightly ahead" of the £678 million recorded in 2016.

However, the 2017 pre-tax profit does not take into account a working-capital write-off signalled in November. That write-off, associated with GKN's US aerospace business, will be "nearer the upper end" of an £80-130 million range, GKN indicates.

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