GKN promises a £2.5bn cash windfall for shareholders in attempt to divert support from Melrose's £7.4bn hostile bid

Lucy White
An employee works on a Volkswagen (VW) c
GKN creates components used in Volkswagen cars and military aircraft (Source: Getty)

Engineering giant GKN revealed its latest attempt to win shareholders' support today, as it fights a £7.4bn hostile bid from turnaround investor Melrose.

GKN said it was "targeting up to £2.5bn cash return to shareholders over the next three years" and expects its own turnaround plan – nicknamed "Project Boost" – to deliver a recurring annual cash benefit of £340m from the end of 2020.

Melrose was quick to talk down the fanfare, saying GKN's proposal was "long on adjectives and promises but desperately short on detail".

Read more: GKN considers giving shareholders more time to mull Melrose's hostile bid as it awaits national security feedback from the US

"It is a stark admission of management failure combined with a series of promises which fall well short of what Melrose is proposing," said a Melrose spokeswoman.

GKN said a significant amount of the £2.5bn cash return – equating to just under £1.50 per existing share – would come from selling off parts of the group, including the powder metallurgy business.

Melrose has repeatedly said it would not pursue this course of action, and today reiterated it would hold on to powder metallurgy "for further improvement and use our proven skills to transform the core businesses of GKN".

Read more: GKN warns pension schemes could be threatened by Melrose's £7.4bn hostile bid

"Melrose has already added £1.3bn to the value of GKN and proposes a further £1.4bn on Day One," said the spokeswoman.

But Anne Stevens, recently appointed chief executive of GKN, argued: “We are bringing clarity to our objectives through distinct strategies for different product segments, with rigorous capital allocation and focused performance targets.

"We are establishing a delivery culture based on greater accountability, with incentives aligned to specific team targets. And we are bringing greater focus, with our divisions now being run as separate operations."

Project Boost

The cash generation-focused improvement plan from GKN will, it said, centre on improving, growing and developing. The company added that selling non-core divisions would also be "a priority".

"To ensure that the strategy is delivered and that shareholder value is realised, a much stronger performance and accountability culture will be instilled," GKN stated.

Project Boost would involve one-off costs of £450m over the next three years, the firm estimated. Of this, £134m would be invested in adopting "world class Industry 4.0" (which includes smart technology such as machine learning, automation and cloud computing) processes.

Read more: Government turns up the scrutiny on Melrose's £7.4bn hostile bid for engineering giant GKN

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