GKN Rejects Melrose Offer; To Separate Businesses; Names Stevens CEO; Stock Up

GKN Rejects Melrose Offer; To Separate Businesses; Names Stevens CEO; Stock Up

Shares in Melrose also rose sharply, adding 7%.

GKN, which used to be known as Guest, Keen and Nettlefolds and traces its history back to 1759, has struggled in recent years and its profit warning came after a downturn in its USA aerospace business. Melrose now has until 5pm on 9 February 2018 to announce whether it intends to make a firm offer for GKN or not.

Last year, lower profit margins and cash generation prompted GKN to conduct a wide-ranging review of its business.

In November, the company announced that its CEO designate Kevin Cummings was leaving the company with immediate effect following a profit warning brought about by difficulties on United States aerospace operations.

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".

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

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

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said GKN had "made up for years of lumbering progress in a flash".

Whether today's news will affect the Isle of Wight division is not yet known.

The initiative will be headed up by current interim boss Anne Stevens, who has been appointed the firm's new chief executive with immediate effect. 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.

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.

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

"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".

The firm first listed in 2003 with a value of £13m, but in the 15 years since then its value has rocketed. 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.