January 24, 2019

GKN propels FTSE to new high on bid rejection

13 January 2018, 11:52 | Joann Bryant

GKN shares took off on the news

GKN shares took off on the news

The GKN board described the Melrose offer as "entirely opportunistic" adding that "the terms fundamentally undervalue the Company".

As part of its two-year revamp, aptly titled "Project Boost", it will differentiate product segments into core or non-core, which will each have different capital expenditure targets and expectations for growth, margin improvement, cash generation and return on investment.

GKN also announced that Anne Stevens, now its interim chief executive, has agreed to take over as the group's new chief executive with immediate effect. As per the regulations of bidding Melrose will have to make an offer by 9th February of this year.

GKN also announced that the Board believes separating the Aerospace and Automotive businesses will help maximise shareholder value by setting distinct strategic, operational and financial objectives for each business.

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.

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: "The separation of the automotive and aerospace units has been on the cards for years, with little obvious 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", he said. This is before accounting for the previously announced substantial write-offs in the North American Aerospace business. GKN is divided into multiple sectors, including aerospace, automotive technology and engineering solutions.

The company's origins can be traced back to the Dowlais Iron Co, near Merthyr Tydfil in South Wales, in 1759.

The Patent Nut & Bolt Company, founded in Birmingham in 1856, was combined with Dowlais in 1900 in a new group called Guest, Keen & Co.

GKN was heavily involved in wartime production in the first half of the 20th Century, during which time the company made its first move into the emerging motor industry.

"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". It is now valued at more than £4bn, having returned £4.4bn to shareholders since its formation.

Last August the firm acquired United States company Nortek for £2,2bn.

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