As I See It
GKN gets desperate as more declare for Melrose bid
The statement follows an embarrassing apology and clarification for GKN’s most recent comments and support for the Melrose bid from the FT’s Lex Column on Tuesday and criticism of the Driveline sale to Dana by Numis Securities on Monday.
GKN management has branded Melrose as a hostile bidder that will break up the company but in the same breath hails its own plan to divest GKN of its automotive division, Driveline, to US competitor Dana, sell its Powder Metallurgy division much earlier than Melrose has said it would, and is keeping its options open on aerospace.
With Melrose committing to invest in the existing company and not sell the aerospace division until at least 2023 the only people threatening to break GKN up is in fact its own management.
The purchase of Driveline by Dana – at a price £800m less than what GKN previously valued it at – means a new US-based company, headquartered in Ohio, will be established with GKN shareholders having less than half of the equity – management authority will mean a once great part of the GKN stable becomes a US company.
GKN is effectively leaving the market to the Americans and already branding itself in the future as a “pure play (sic) aerospace company”.
Only yesterday Dana brought forward a further £100 million for the purchase of Driveline, signaling to analysts a last ditch desperation as well as a failure by GKN to extract the best amount in the original negotiation.
This followed the retraction of comments by GKN’s chief executive Anne Stevens and finance director Jos Sclater given to Sunday papers.
The embarrassment was added to by Numis whose analyst David Larkham called the Driveline agreement between Dana and GKN the “right deal, wrong price, wrong time” saying “the business is being sold too cheaply and too early.” It was the very point Melrose has been making, its management proposing to build up all the GKN operations before taking a view on any sales.
The Lex Column of the Financial Times highlighted three problems facing GKN, “a conglomerate discount in the share price, weak margins and a large pension deficit” but found strengths in the proposals of both the bidder and the target.
In the end it came down in favour of Melrose stating, “Promises made in the heat of battle often remain unfulfilled once hostilities abate. Melrose has delivered on promises.
This record suggests three-fifths of Melrose and cash up front will be worth more than all of a smaller GKN plus a Dana stake. The vote may go either way. But we think GKN shareholders should accept the Melrose bid.”
Where does the UK government stand on what GKN is doing if it decides there are grounds to intervene on Melrose?
How has the debate gotten to a place where Melrose is painted as the bad guys when its proposals are are to hold and improve all the businesses while the GKN management is the one stripping the company out?
The Melrose offer closes at 1pm on 29 March.