GKN major shareholder Elliott Advisors backs Melrose’s takeover bid

GKN shareholder Elliott Advisors has said it backs a £7.8bn bid by Melrose for the British engineering firm, as the clock ticks down to next week’s deadline for investors to decide on the hostile takeover bid.

Elliott, which has a 3.8% shareholding, told GKN’s management it did not trust it to deliver the “profound cultural shift” needed to meet new targets while driving through two deals. The move means that more than 10% of GKN’s shareholder base has come out on favour of the hostile bid, edging ahead of the 9% who are backing GKN’s board.

Shareholders have until midday on Thursday to support the offer from turnaround specialist Melrose or the GKN management plan to spin off the engineering groups automotive business and combine it with the US-based Dana, leaving GKN focused on aerospace.

Investors are divided. Columbia Threadneedle, which also has a 3.4% holding, threw its weight behind GKN’s plan this week, joining top-30 investor Jupiter Asset Management.

Q&A

What is GKN?

GKN is a global engineering business based in Redditch, Worcestershire. It employs nearly 60,000 people across 30 countries.

Once known as Guest, Keen and Nettlefolds, the firm can trace its origins back to 1759 and the birth of the Industrial Revolution in Britain.

Split into three key divisions – GKN Aerospace, GKN Driveline and GKN Powder Metallurgy – the multinational designs, manufactures and services systems and components for most of the world’s leading aircraft, vehicle and machinery makers.

In 2017 it recorded pre-tax profits of £572m.

Photograph: David Davies/PA

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Elliott, which has joined Aviva Investors in backing Melrose, said in a letter to GKN’s executives that hostile takeover bids often pressed management teams to come up with ideas that in normal circumstances would be disregarded as “pure fantasy”.

It added: “GKN’s track-record at improving its operating margins has been unimpressive, yet your team nevertheless claims that it can deliver on its most ambitious plan ever, and that a few potentially qualified individuals can extract the company from its torpor to deliver over a 35 percent increase in profitability.” Elliott also encouraged other shareholders to back Melrose.

On Friday, Melrose lifted a self-imposed deadline for approval by the US authorities to enable the acquisition to conclude should shareholders back it next week.

Melrose said discussions with the Committee on Foreign Investment in the United States and the Defense Security Service had been constructive and included potential interim mitigation measures.

A mainstay of Britain’s engineering sector, GKN makes parts for the US aviation industry, such as the Boeing 737 jet and the Black Hawk helicopter, as well as components for Volkswagen and Ford cars.

GKN’s status as a key UK manufacturing business, it employs 60,000 people across 30 countries, has led to trade unions, clients and MPs voicing concerns about the Melrose bid. Melrose rejects critics’ attempts to characterise it as an asset-stripper and instead claims it has a strong record of turning round ailing businesses.

But the asset-stripper accusations have been enough to spur some MPs into action. In February the defence secretary, Gavin Williamson, wrote to the business secretary, Greg Clark, who has the power to call a public interest inquiry into the deal, expressing his concern over Melrose’s bid.