Jason Butler of NW Brown: Melrose still keen on GKN despite profit warnings

Jason Butler of NW Brown. Picture: NW Brown.

Jason Butler of NW Brown. Picture: NW Brown. - Credit: Archant

The British automotive and aerospace components company GKN last week rebuffed a takeover approach from Melrose.

The informal bid from Melrose, which specialises in buying and turning around manufacturing companies, was a £7bn cash and share offer (equivalent to 405p per share when announced) along with proposals for improving GKN's performance.

The GKN board turned down the unsolicited offer, saying it was opportunistic and undervalued the company. But the approach came at a difficult time for GKN.

The group has issued two profit warnings since October 2017 and the incoming chief executive Kevin Cummings stepped down at the same time, with the company warning of problems at its US aerospace division, which he led.

Melrose intends to formally pursue its takeover proposal and will tell GKN shareholders the company is 'overly complex and under-managed'.

In contrast, while the outlook is cautious and performance has been muted in the short-term, GKN says it is trading in line with expectations.

The company remains a well-diversified, high quality engineering company that is a prime supplier to car manufacturers and the world's biggest aerospace companies.

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A key consideration for long-term holders of a company in a prospective takeover is whether the offer price represents good long-term value and whether higher bids might be forthcoming.

Melrose has until February 9 to make a firm offer and investors expect further talks and possibly a higher offer. In the meantime, there are rumours that US buyout company Carlyle Group is also interested in GKN.