GKN has rejected a firm £7.4bn bid from Melrose after the turnaround specialist went hostile in its attempt to buy the aerospace and automotive group.
The terms of the cash and share deal are unchanged since Melrose’s initial approach was revealed on Friday, consisting of 1.49 Melrose shares and 81p in cash for every GKN share. But a rise in Melrose’s share price since Friday from 215p to 230p means the value of the offer has increased from 405p a share to 423p. In the market GKN has added 0.2p to 442.2p, with the City betting either on a higher bid from Melrose or a rival bidder.
Melrose made its firm offer after both sides began lobbying GKN shareholders in a series of meetings which are continuing. The activist investor Elliott has already begun urging GKN to open talks with Melrose.
Simon Peckham, the Melrose chief executive, said: “We are having discussions with shareholders about the potential for the merged business, which will be one of the largest companies in the UK.”
But GKN, which has put forward its own plans to split the company in two, said the benefits of any turnaround should go to its own investors. Its chief executive, Anne Stevens, said: “We believe GKN’s current owners should retain all the benefits of the clear upside potential in GKN. We are actively engaging with shareholders to explain how our transformation plan will provide value.”
Matthias Heck, an analyst at Moody’s, said a demerger would be negative for GKN’s credit rating “because the scale of separated activities will be smaller and there will be less product diversification”.
Meanwhile GKN’s pension trustees said any potential buyer should be aware of its £1bn-plus deficit, adding: “Any material change to the corporate and capital structure of GKN would lead the trustees to reassess the strength of the covenant going forward.”
A Melrose spokesperson said: “Melrose has an impeccable track record of safeguarding and improving pensioners’ rights in every acquisition we have made. We look forward to meeting the trustees as soon as is appropriate.”