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GKN's Rival Suitors Offer Incentives in Race to Woo Shareholders

Updated on
  • Melrose would inject $1.4 billion to shore up pension plan
  • Dana plans secondary U.K. listing after buying GKN auto unit

With just over a week to go before a hostile offer for GKN Plc runs out, rival suitors offered up additional sweeteners to convince shareholders of their competing plans for the U.K. aerospace and automotive supplier.

Melrose Industries Plc on Monday pledged to pump 1 billion pounds ($1.4 billion) into GKN’s pension plan, while easing acceptance terms for its unsolicited bid, which runs until March 29. On the other side of the intensifying battle, Dana Inc. promised to list its stock in London following the U.S. company’s proposed takeover of GKN’s automotive unit.

“It’s going to be close,” Sandy Morris, an analyst with Jefferies in London, said by phone about which plan investors will prefer. “It’s really coming down to an acid test in how much faith they have in Melrose to deal with an acquisition that is as large and complicated as GKN.”

The latest measures unveiled by Melrose and Dana are aimed at shoring up weaknesses in the dueling proposals for GKN, the Redditch, England-based supplier of parts to manufacturers like Airbus SE. GKN management opposes the 8.3 billion-pound offer from investment firm Melrose, arguing that investors have more to gain if they stick with its own turnaround plan. As part of its defense, GKN set in motion plans for a breakup, agreeing this month to sell its automotive unit to Dana in a $6.1 billion transaction.

GKN won the support of a core investor Monday after Columbia Threadneedle Investments, which holds a 3.4 percent stake in GKN and 6.2 percent in Melrose, said it would reject the hostile bid for the engineer.

‘Frustrated’ Investor

“We have been frustrated by the performance of GKN in recent years and this has necessitated fundamental changes in the company,” Head of U.K. Equities Richard Colwell said in a statement. “After careful consideration, we believe the actions set out by the new team at GKN present the best options for shareholders. Accordingly, we are not accepting the Melrose offer.”

GKN advanced 0.4 percent to 428.50 pence at 1:10 p.m. in London. Melrose last week raised its cash-and-stock offer, which now values GKN at 457 pence a share. The target rejected the bid, saying it undervalues the company and that its plan would generate more than 500 pence a share for investors. Melrose declined 0.9 percent.

Dana, which would rename itself Dana Plc following a combination with the automotive business, said it planned the secondary stock listing in London after talks with GKN shareholders. The move is aimed at assuaging any investor concerns about holding non-U.K. investments.

London Listing

A London listing will offer shareholders “an opportunity to share in the success of the new company, including value created through the delivery of $235 million in annual synergies,” Jonathan Collins, chief financial officer of Maumee, Ohio-based Dana, said in a statement.

The deal to sell its powder-metallurgy business would transform GKN into a pure-play aerospace business focused on supplying airframe and engine housing structures to Boeing Co. and Airbus.

In response, Melrose called the move “a fudge which is unattractive to U.K. shareholders” because with a secondary listing, Dana won’t be included in U.K. indexes and thus won’t be attractive to investors who compare their performance against those benchmarks.

Melrose on Monday lowered the level of GKN shares that need to be tendered for the deal to go through. The acceptance level now will be 50 percent plus one share, down from 90 percent originally. After coming under criticism from pension trustees, the bidder also said it would add to GKN’s benefit plan. The bidder reiterated that its offer is “clearly superior to the hasty breakup” that the U.K. auto and aerospace components maker is planning.

The battle for GKN erupted in January when Melrose swooped in with a hostile offer for the U.K. target just as it was grappling with inventory issues at its aerostructures business in North America that had led to the 2017 firing of a CEO-designate. GKN appointed interim CEO Anne Stevens to the position permanently at the same time as disclosing the unsolicited approach from Melrose.

Both sides have wooed shareholders during the standoff, while third parties including customer Airbus and British lawmakers have weighed in to express concern about Melrose’s investment strategy.

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