Engineering company GKN PLC said Friday it has rejected a GBP7 billion unsolicited takeover approach from turnaround specialist Melrose Industries PLC, and has chose to split its divisions as part of a new two-year profit improvement programme.
A bid battle is now likely as Melrose, which specialises in buying struggling businesses, turning them round and selling them at a profit with the proceeds given back to shareholders, will pursue its interest despite GKN's opposition.
GKN says Melrose's "preliminary and unsolicited" offer to purchase the entire shareholding was "entirely opportunistic", and that the terms "fundamentally undervalue the company and its prospects".
Instead, GKN said it would break itself up, separating the aerospace and automotive divisions into two companies under newly-confirmed chief executive Anne Stevens and launching a new two-year revamp plan.
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GKN Cowes - which has over 1,000 employees - manages the whole product life cycle for high value complex composite structures and sub-assemblies from design, manufacture, test, and certification and aftermarket services.
The offer valued GKN at 405p per share and comprised 81p in cash per share with the remainder made up of Melrose shares. GKN acknowledges that profit margins and cash generation have been "below expectations", despite a rise in sales.
The firm itself undertook a "wide-ranging review" of its business past year, as profit margins and cash generation were stuck "below expectations".
A second large writedown at the aerospace division in November saw the departure of CEO-designate Kevin Cummings, the head of the aerospace division who had been set to take over the top job this month.
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The company said separation of the units will maximise value and will give shareholder an option in having separate companies with distinct investment profiles and capital allocation policies. 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.
The engineering group also announced the appointment of interim boss Anne Stevens as the group's permanent chief executive. This is before accounting for the previously announced substantial write-offs in the North American Aerospace business.
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.
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In 2012 Melrose bought utility metering firm Elster for £1.8bn and sold it three years later to Honeywell for £3.3bn.