Melrose has upped its bid for GKN – here’s how City analysts reacted
Melrose Industries today confirmed a plan to boost its hostile bid for engineering giant GKN to £8.1bn from £7.4bn.
GKN’s shares have edged down 0.23 per cent since the announcement this morning to 434.1p, while Melrose’s stock has sank 3.65 per cent to 216.5p.
Here’s what three City analysts had to say about the latest development in the tumultuous battle between the two firms…
Melrose might not get its way
“The muted market reaction of the GKN share price to the increased offer of 467p by Melrose is the strongest indication yet that Melrose might not get its way and that GKN’s management and their Project Boost strategy is winning,” said Rebecca O’Keeffe, head of investment at Interactive Investor.
“The robust efforts GKN has taken to protect itself from the hostile bid, including the proposed disposal of its Driveline business to Dana, combined with the comments from Melrose that their offer will ‘not be increased under any circumstances’ is leading investors to conclude that GKN has won this battle, at least for now.”
Read more: Melrose shareholders give the green light to £7.4bn GKN bid
GKN has the upper hand
“I remain in little doubt that GKN retains the upper hand in the unfortunate and opportunistic hostile bid situation that it faces,” said aerospace analyst Howard Wheeldon.
“In raising its offer by a relatively small and insignificant amount, Melrose says that all attempts to engage in constructive discussions with GKN have been blocked.
“So, it isn’t just the agreed deal that was announced on Friday between Dana with GKN Automotive Driveline that leads me to the conclusion that the Melrose bid for GKN has now been overtaken by events but also in relation to the ridiculously low value attributed by Melrose to GKN Aerospace assets. The bottom line is that by the speed of the well thought out strategy and actions that the GKN board has already taken and that bring in significant additional value for its shareholders, I believe that GKN has already proved quite conclusively that it doesn’t need Melrose to show it how to add value for its shareholders.”
Despite an impressive track record, Melrose faces obstacles
“The number of acceptances received so far is fairly high for a hostile bid. However, even with this sweetened and ‘final’ offer, the deal still faces material obstacles,” said AJ Bell investment director Russ Mould
“At the end of last week, in an attempt to fend off Melrose, GKN agreed a $6.1bn deal with US firm Dana to merge its automotive business.
“Several MPs have argued the Melrose takeover approach should be blocked and The Pensions Regulator has expressed concern about Melrose’s ability to fund GKN’s pension scheme.
“Some of these fears may be unfounded. Although its ‘buy, fix, sell’ approach has been compared to private equity, Melrose can justly point to differences as it typically invests fresh capital in the acquired businesses rather than simply stripping out costs.
“Its long-term track record is also impressive, although it has never taken on a business of GKN’s size before.”
Read more: Melrose has just upped its offer for GKN to £8.1bn