Industrial turnaround specialist Melrose has published its formal offer for engineering giant Melrose, promising to "simplify and declutter" the business but leaving the £7.4bn price tag unchanged.
In a letter saying that GKN is "underperforming its potential and its competitors", Melrose assured shareholders that it could "create a UK engineering and industrial powerhouse worth over £10bn today in which GKN shareholders would be majority owners".
GKN's management has repeatedly dismissed the hostile bid, and today again called the offer "entirely opportunistic".
"This offer is derisory," said GKN's chief executive Anne Stevens. "Melrose is trying to buy GKN on the cheap and with GKN’s own money, just at the point when our company is beginning to reap the benefits of its long-term investments."
Melrose tried to persuade shareholders by reference to its own track record, saying that by acquiring other engineering companies and improving them, it has generated a total net shareholder value increase of £4.9bn since 2005 and has returned £4.3bn of cash to shareholders.
"We expect to re-energise and re-purpose GKN’s operations to enable them to exceed GKN’s own top-end group trading margin target of 10 per cent," Melrose's executive chairman Christopher Miller wrote.
He added that immediate actions would include:
- A head office restructuring and simplification of the management structure,
- A "change of culture" to focus on performance and reduced cost base,
- A focus on profitability, not sales,
- Investment in operations to produce return rather than growth only,
- Returning management focus back to the business by "changing incentives and ensuring targets are delivered", and
- "Fast economic-based decision-making to create a "speedy, flat and non-bureaucratic organisation".
Melrose plans to "declutter" the business by selling smaller aerospace and driveline divisions, after first improving them.
"We do not intend any hasty separation of the automotive and aerospace businesses," Miller said – this had been GKN's plan to convince shareholders it could make improvements.
The firm also repeated its intention to make a voluntary £150m contribution to the pension schemes. GKN had warned any potential bidder that they would be a taking on a £1bn-plus pension deficit.
However Melrose still faces hurdles, as the government has raised national security concerns over the bid due to GKN's involvement in the manufacture of components for military aircraft.
Melrose job cuts
As all eyes were on the Melrose-GKN battle, the bidder announced job cuts in its own business.
In a trading update, the firm said performance was "in line with expectations". But it later told 270 workers at its Brush turbogenerator business in Loughborough to go home, union representatives said.
The firm confirmed it was in consultation to cut the jobs, as the division had been underperforming for some time due to reduced demand for the turbogenerators which provide electricity for the oil and gas industry.