GKN propels FTSE to new high on bid rejection

GKN Rejected The Bid

Reuters noted that the offer sent shares in GKN up 20% in early Friday trading in London.

GKN (GKN) shares jumped 26.3% to 420.1p after the group rejected a 405p per share approach from Melrose, instead setting out plans to split its business in two to unlock value for shareholders. In 2015, Slaughters acted for the company on a £200m shares placement. The offer would have resulted GKN shareholders owning 57% of the combined company and and Melrose shareholders holding 43%.

"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.

The company said: "The Board of GKN has considered the Proposal... and has unanimously rejected it, having concluded that the Proposal is entirely opportunistic and that the terms fundamentally undervalue the Company and its prospects".

Melrose must now make a firm offer for GKN or withdraw its bid by 9 February.

It added: "The timing of the separation will be determined by the need to maximise the economic benefits and minimise the costs associated with separation". GKN acknowledges that profit margins and cash generation have been "below expectations", despite a rise in sales.

GKN, which used to be known as Guest, Keen and Nettlefolds and traces its history back to 1759, has struggled in recent years and its profit warning came after a downturn in its U.S. aerospace business.

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GKN also announced interim chief executive Anne Stevens would become the new boss of the company with immediate effect after its incoming chief executive left the group in November before taking up his new role.

On Friday, it said a new two-year strategy called Project Boost would significantly increase cash flow by cutting costs and expenditure along with tighter pricing control.

Stevens, the former Chairman and CEO of USA alloys manufacturer Carpenter Technology Corp, became interim chief executive of the company earlier in January following the retirement of Nigel Stein.

Within Friday's announcement, GKN alluded that fourth quarter trading was "in line with expectations" and said it still expects the full year's profit before tax to be "slightly ahead" of last year's figure of £678m.

"The money to be made from a split is likely to have been what drew turnaround specialist Melrose to the table in the first place".

"Operational challenges" at its North America-based aerospace business were one factor behind a profit warning in October.

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