GKN’S new deal
Takeover target in talks to offload automotive unit to US company
GKN, the British engineering firm fighting a hostile takeover from Melrose, is in talks with the US car parts supplier Dana over a possible deal for its automotive unit.
The FTSE 100 company said it had “received a number of approaches in respect of its businesses” but had engaged in discussions with Dana. GKN said that any tie up of the automotive unit, GKN Driveline, with Dana would be “effected mainly in equity”, without giving details on control.
GKN has been working on a restructuring, which it revealed after a hostile approach from turnaround firm Melrose, and said on Tuesday that it planned to formally demerge itself in two within 18 months. The firm has already begun separating its aerospace and automotive arms operationally.
The company said that, while it believes it has “significant upside potential” through its restructuring plan, the possible deal with Dana “could provide greater value to shareholders and should therefore be explored alongside the demerger, as compared with the Melrose offer which has been rejected by the board as fundamentally undervaluing the firm and its prospects”.
Dana, which went through a Chapter 11 bankruptcy process a decade ago, has similar annual sales to GKN’S Driveline unit. Analysts from Panmure Gordon suggested the move by GKN could play in Melrose’s favour, saying: “We doubt GKN shareholders will accept paper from a US automotive firm given the history of bankruptcies there.”
They said that the current cycle had peaked in 2017 and rising raw material prices could put further pressure on the sector, adding: “It is even harder to imagine how UK politicians who are so worried about losing strategic jobs in the West Midlands will approve a sale to a foreign auto parts manufacturer which filed for Chapter 11 in 2006, two years before the financial crisis.”
A spokesman for Melrose said: “We have said all along that this is a decision about which management team can deliver value and long term growth. Today’s news appears to show that GKN doesn’t trust itself to do so. Melrose stands ready to provide the better option for shareholders and UK plc.”
Separately, GKN also outlined plans to contribute about £160m to its pension schemes once the demerger takes place. GKN’S pensions deficit officially stood at £700m at the end of December but in January the company said on a “technical provisions” basis, which determines how much cash it has to pay into the scheme, the deficit is actually £400m.
GKN’S shares closed down 3.4pc at 420p, while Melrose shares fell 3.3pc to 215.5p, leaving its cash and paper bid for GKN worth about 402p a share.