GKN tells shareholders to choose US group Dana over Melrose

UK engineering company GKN, which is battling a hostile £7.8bn bid from turnaround specialist Melrose, sought to persuade shareholders to back an alternative deal with Dana by saying it would receive more cash from the US company and would return £700m to shareholders as soon as possible. GKN share price was slightly up on the news, rising by 0.16% to 429.7p in early morning trade.

Investors have to decide by Thursday noon whether to support the offer from Melrose or the GKN management plan to spin off its automotive business and merge it with the US-based Dana, leaving GKN focused on aerospace.

Shareholders are divided. Elliott Advisors and Aviva Investors support the Melrose takeover, while Columbia Threadneedle and Jupiter Asset Management are backing GKN’s plan.

GKN said on Monday that Dana had increased the amount of cash payable to GKN by $140m (£100m). GKN will now receive $1.77bn in cash after deducting $1bn for the transfer of the pension deficit to the Dana-GKN Driveline group. GKN shareholders will continue to own 47.25% of the combined company, which would be listed on the New York and London stock exchanges. All other terms remain unchanged.

GKN plans to return up to £700m of cash to shareholders “as soon as practicable” following the deal with Dana – the first instalment of the up to £2.5bn cash return programme was announced previously.

Mike Turner, GKN’s chairman, reiterated to investors that GKN’s true value is more than £5 a share and that Melrose’s final offer “fundamentally undervalues your company and should be rejected”.

“GKN has re-invented itself numerous times in its 250-year history,” he said. “We are confident that, following the Dana transaction and the non-core disposals, GKN will become a pure play aerospace company with a strong balance sheet, our pension challenges behind us and a clear plan for delivering leading margin performance.”

Analysts at Numis said the Dana transaction was the right deal but at the wrong price and the wrong time. “The combination of Dana and GKN Driveline to create a world leader in auto driveline has significant strategic merits. The issue we have is that the business is being sold too cheaply and too early.”