Finance

GKN pushes ahead with demerger after rejecting £7bn takeover offer

GKN pushes ahead with demerger after rejecting £7bn takeover offer

GKN also announced on Friday that it had appointed Anne Stevens (left) as chief executive with immediate effect.

It also announced plans to split its aerospace and automotive divisions into separate companies, although the timing has not been confirmed.

GKN's board dismissed the offer from Melrose in a unanimous decision.

Investors have been calling for GKN to split its businesses as management persistently failed to meet targets to improve profit and cash flow despite growing sales.

Its board, in tandem with financial advisers Gleacher Shacklock, JP Morgan Cazenove and UBS, "unanimously rejected" the proposal, which it deemed "entirely opportunistic" and to "fundamentally undervalue" the company and its prospects.

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.

Instead, the firm confirmed in a statement on Friday it had chose to split out the automotive and aerospace into two separate companies as part of a two-year "transformation programme", ending months of speculation over the firm's future. GKN had been looking for a new chief after Kevin Cummings, who had been due to take on the role, was dismissed following October profit warning sparked by problems in its aerospace division.

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It said both businesses would benefit from being separate companies with distinct investment profiles and capital allocation policies.

Nicholas Hyett, an analyst at Hargreaves Lansdown, said the split had been "on the cards for years" because there was little crossover between the two businesses. Historically, the pension deficit has held the group together, but with the sprawling footprint likely to have contributed to recent profit warnings, the reasons for divorce now seem to outweigh the costs of splitting. That write-off, associated with GKN's USA aerospace business, will be "nearer the upper end" of an £80-130 million range, GKN indicates.

On the back of this news, GKN's shares hit their highest level in well over a decade. The town's ironworks supplied rails to railways in the United Kingdom and overseas, making it the world's largest by 1845.

Two years later, it took over Nettlefolds Ltd to become Guest, Keen & Nettlefolds.

"If Melrose's bid is successful it will blow a hole in the government's hope of developing a coherent industrial strategy and signal that government ministers are happy to see yet another British company fall prey to vulture capital".

In 2012 Melrose bought utility metering firm Elster for £1.8bn and sold it three years later to Honeywell for £3.3bn.


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