Melrose, a London-listed company which acquires and turns around manufacturing companies, is set to meet with shareholders of engineering giant GKN tomorrow to pursue a £7bn bid.
But the process could soon turn into a bidding war, as sources have told City A.M. that US buyout house Carlyle has also been sniffing around GKN.
Melrose made its 405p per share offer for GKN, which manufactures parts for Boeing and Volkswagen, on 8 January. Though GKN's management rejected the offer, and came up with its own plan to split the business in two, sources told City A.M. that Melrose would aim to convince shareholders tomorrow of the merits of its takeover offer.
Private equity giant Carlyle has previous expertise in manufacturing and aerospace businesses, having invested in names such as Axalta Coating Systems and Atlas Aerospace. It is understood that other buyers are also toying with the idea of making a bid for GKN.
But a spokesperson for Melrose said any offer would likely have to be substantially in excess of its £7bn bid, since it is offering investors "significant upside" as it improves the business and will allow current shareholders to retain a 57 per cent stake.
Shares in GKN soared to a 10-year high last week, after the business said it would accelerate plans to separate its automotive operations from its aerospace business in a bid to stave off the takeover attempts.
The move was especially popular with existing investors, who had renewed calls for a split since an unexpected profit warning in October prompted by difficulties in aerospace.
But Melrose said it could "re-energise and re-purpose GKN’s operations", maximising value for shareholders before any potential division.
GKN's board responded by saying the offer was “entirely opportunistic” and “fundamentally undervalues the company and its prospects”.
Although an acquisition by Carlyle would be a controversial move, given private equity's reputation for asset stripping, a sale to Melrose might attract similar criticism. Aerospace analyst Howard Wheeldon today called the company a "vulture", saying its turnaround mandate was a "euphemism for stripping the assets and loading the company up with debt".