GKN shares surge on £7 billion Melrose takeover approach

Updated: 

Shares in GKN have rocketed after the engineering firm revealed that it has rejected a £7 billion takeover bid from Melrose.

The company said on Friday that it rebuffed an "opportunistic" and "unsolicited" proposal from the turnaround specialist as it undervalued GKN.

The offer represented a price of 405p per share, comprising 80% in new Melrose shares and 20% in cash.

"The board of GKN has considered the proposal together with its financial advisers... and has unanimously rejected it, having concluded that the proposal is entirely opportunistic and that the terms fundamentally undervalue the company and its prospects.

"In addition, the proposal would materially dilute the exposure of GKN shareholders to the meaningful upside opportunities that the board believes are present within the company," GKN said.

Shares in GKN rocketed 24% or to 413p in morning trading following the announcement.

For its part, Melrose said there would be significant operational and commercial benefits arising from a takeover, "reversing a history of existing GKN management not delivering" on targets.

The company said it would "re-energise and re-purpose" GKN's operations, delivering a £300 million boost to profits.

GKN also announced its intention to separate the business into core and non-core segments.

But Melrose said it believes that shareholder value would be "maximised by it significantly improving the businesses prior to any separation".

Ian Forrest, investment research analyst at The Share Centre, said: "All of this news is clearly good for GKN shareholders and represents a very bold move by Melrose.

"It may come back with an improved offer, they have until February 9 to make a formal bid, and there is the possibility of other bidders coming in. "

The takeover tilt comes at a difficult time for GKN, which in November ditched its incoming boss less than two months before he was due to take the top job as it warned over another hit in its troubled US plant.

The group ousted Kevin Cummings, GKN's aerospace head, who was due to take over from incumbent chief executive Nigel Stein in January.

The firm has instead appointed non-executive director Anne Stevens as interim chief executive and on Friday confirmed her as the company's permanent boss.

GKN, which makes wing tips for Airbus and parts for car giants including Mercedes and Jaguar Land Rover, also revealed last year that a review of its US aerospace plants had uncovered additional write-offs of between £80 million and £130 million.

It had previously expected to write off £15 million on its Alabama facility, relating to "revised assumptions" on programme inventory and receivables balances, which sparked a wider review across the division.