Image copyright Getty Images Image caption GKN is a partner on the F-35 joint strike aircraft

One of Britain's oldest engineering firms has been sold for £8.1bn to a controversial investment firm.

GKN, which has had a hand in making everything from Minis to Spitfires, lost its battle to stay independent.

Melrose Industries, which specialises in turning round troubled manufacturing businesses and selling them on, won the backing of 52% of GKN shareholders.

Business Secretary Greg Clark said Melrose now had to honour its commitments to stay UK based.

Labour called Melrose a "short-termist asset-stripper" and condemned the deal.

Admitting defeat, GKN's management said it would now work with Melrose to ensure the success of the new company.

The battle for GKN, which employs 58,000 staff worldwide, 6,000 of them in the UK, drew protests from government, unions and GKN customers.

GKN's board had promised it would overhaul itself and sell off its car parts division, but it was not enough to stop investors agreeing to sell their shares to Melrose.

Christopher Miller, chairman of Melrose, said: "We are delighted and grateful to have received support from GKN shareholders for our plan to create a UK industrial powerhouse with a market capitalisation of over £10bn and a tremendous future."

News of the successful bid sent GKN's share price up over 6% to 450p. Melrose's offer is equivalent to 462p a share.

GKN's businesses cover aerospace and automotive engineering. Its Driveline division makes systems for roughly half the world's passenger cars and light trucks.

Its aerospace division is a major supplier to the US military and a key partner on defence programmes such as the F-35 joint strike aircraft in which the UK government has a stake.

Melrose's strategy it says, is to keep the company together "to improve all of the businesses in GKN, only realising their value once they have reached full potential."

Image copyright Getty Images Image caption GKN Driveline supplies some of the world's biggest car manufacturers

Alarm

However, what happens afterwards has alarmed politicians and unions and some of GKN's customers.

Mr Clark said: "During the bid, Melrose made commitments which they are bound to honour including investment in research and development and maintaining itself as a UK business.

"Now that shareholders have made their decision the government has a statutory responsibility to consider whether the merger in its proposed final form gives rise to public interest concerns in the areas of media plurality, financial stability and national security.

"This assessment will be made by the appropriate authorities and the conclusion set out in due course."

Image copyright Getty Images Image caption Airbus has said new business with GKN after a Melrose takeover would be "practically impossible"

Before Melrose won the bid Airbus, which is supplied by GKN, said it would be "practically impossible" to give new business to GKN if Melrose's offer was accepted because it damaged long-term investment prospects in the company, which could reduce R&D budgets and limit innovation.

Paul Everitt, the chief executive of the ADS trade organisation, which represents the aerospace and defence sectors, said: "GKN is an important part of the UK industrial landscape and it is important that its owners continue to invest for the long-term and support high value jobs both directly and throughout its UK supply chain."

The Unite union said it would be holding Melrose's "feet to the fire" over concessions it had made in recent days and seeking "concrete guarantees" on job security, investment and future work in the UK.

Bid launched

Melrose launched its bid in January, initially at £7bn. It increased that this month to £8.1bn, with up to another £1bn to support the pension fund.

It argued that it could increase GKN's profitability which has been falling steadily over the last five years.

Image copyright Reuters

In the run up to the bid, GKN had also suffered a crisis of leadership, with its chief executive-in-waiting, Kevin Cummings, forced to step down after problems in the company's US aerospace division.

The new chief executive, Anne Stevens, a former Ford executive, devised a plan to merge GKN's Driveline with the US car components group Dana to create a new company. GKN would have got a 47% stake in it and $1.8bn (£1.28bn) in cash from Dana.

But Melrose called the plans "panicked and fraught with contradictions".</s>Zacks Investment Research cut shares of GKN (OTCMKTS:GKNLY) from a buy rating to a hold rating in a research report sent to investors on Tuesday morning.

According to Zacks, “GKN plc operates as an engineering business serving the automotive, industrial, off-highway, and aerospace markets. It sells its products primarily to vehicle and aircraft manufacturers as well as, in Aerospace, to other tier one suppliers. It operates in four different business areas. Automotive segment supplies driveshaft, geared components, torque management devices, structural and engine components and substrates for catalytic converters. Powder Metallurgy segment produces powdered metal and sintered components for automotive and other industrial customers. OffHighway segment mainly designs and manufactures steel wheels and driveline products for the agricultural, construction and mining, and industrial machinery markets. Aerospace segment’ activities are concentrated on the production of airframe and engine structures, components and assemblies for both military and civil aerospace markets. GKN plc is headquartered in Redditch, the United Kingdom. “

Separately, Numis Securities cut shares of GKN from a buy rating to a hold rating in a research note on Monday, January 15th.

OTCMKTS:GKNLY opened at $6.30 on Tuesday. GKN has a one year low of $3.86 and a one year high of $6.50. The company has a current ratio of 1.51, a quick ratio of 0.93 and a debt-to-equity ratio of 0.44.

ILLEGAL ACTIVITY WARNING: This story was first published by Macon Daily and is the property of of Macon Daily. If you are accessing this story on another website, it was copied illegally and republished in violation of US & international copyright laws. The original version of this story can be read at https://macondaily.com/2018/03/30/zacks-investment-research-lowers-gkn-gknly-to-hold.html.

GKN plc is a global engineering company. The Company is engaged in the design, manufacture and service of systems and components for original equipment manufacturers. The Company operates in four segments: GKN Aerospace, GKN Driveline, GKN Powder Metallurgy and GKN Land Systems. The GKN Aerospace segment is a supplier of airframe and engine structures, landing gear, electrical interconnection systems, transparencies and aftermarket services.

Get a free copy of the Zacks research report on GKN (GKNLY)

For more information about research offerings from Zacks Investment Research, visit Zacks.com

Receive News & Ratings for GKN Daily - Enter your email address below to receive a concise daily summary of the latest news and analysts' ratings for GKN and related companies with MarketBeat.com's FREE daily email newsletter.</s>The government will assess whether the takeover of British engineering giant GKN raises public interest concerns, the business secretary has said.

Shareholders have accepted a hostile bid of £8.1bn from investment firm Melrose Industries.

Unions want the deal to be blocked on national security grounds.

Business Secretary Greg Clark told BBC Radio 4's Today programme he would not give a view until he had considered all the evidence.

The battle for GKN, which employs 58,000 staff worldwide - 6,000 of them in the UK - drew protests from government, unions and GKN customers.
• Why the the GKN bid battle matters

Labour called Melrose a "short-termist asset-stripper" and condemned the deal for one of Britain's oldest engineering firms, which has had a hand in making everything from Minis to Spitfires.

Melrose Industries, which specialises in turning round troubled manufacturing businesses and selling them on, won the backing of 52% of GKN shareholders.

The British firm has promised to keep the company headquarters in the UK, maintain current levels of R&D spending, and to not sell the aerospace business for five years.

Mr Clark said it was "good" Melrose had made those "legally binding" commitments but the government now had a statutory responsibility to consider whether the merger gives rise to public interest concerns.

Lord Heseltine, the former defence secretary, said it should be stopped on national security grounds, adding that "no other country of our sort would have allowed this to happen".

There are worries that Melrose could sell GKN's aerospace business, which is involved in defence programmes, to an overseas buyer in the future.

However, Mr Clark refused to be drawn on whether he believed there were national security concerns about the bid because he needs to act "objectively".

He also dismissed Lord Heseltine's claims that other countries would block such a takeover, saying "our practice is very consistent with those of other competitors".

He added that the shareholders had made their choice and "decided they want a new management".

He also played down concerns over speculators buying up shares to swing the vote, saying investors who had recently sold up had effectively chosen not to back the company's management.

The business secretary has defended the existing rules governing takeovers, and is clearly pleased with the guarantees he managed to get out of Melrose.

Listening to Greg Clark's radio interview, it was clear he thinks shareholders should determine the fate of the companies they own.

He said it is the "narrow question" of national security that he will consider.

Would Melrose's (five-year?) ownership of GKN threaten UK national security? Unions think so.

However, the vast majority of GKN's work is for civilian purposes, not military.

GKN is not listed as one of the Ministry of Defence's top 50 suppliers. But it makes components for the Eurofighter Typhoon fighter jet (made by BAE and Airbus) and the A400M military aircraft (made by Airbus).

GKN's US defence business is much more significant.

A US committee is still determining whether to give approval to Melrose to act as a provider to the US military. Melrose clearly expects it will get that approval.

Could the US say "yes" and the UK "no"?

Some City analysts doubt a national security argument can be made to block this takeover.

Admitting defeat, GKN's management said it would now work with Melrose to ensure the success of the new company.

GKN's board had promised it would overhaul itself and sell off its car parts division, but it was not enough to stop investors agreeing to sell their shares to Melrose.

Christopher Miller, chairman of Melrose, said: "We are delighted and grateful to have received support from GKN shareholders for our plan to create a UK industrial powerhouse with a market capitalisation of over £10bn and a tremendous future."

News of the successful bid sent GKN's share price up over 6% to 450p. Melrose's offer is equivalent to 462p a share.

GKN's businesses cover aerospace and automotive engineering. Its Driveline division makes systems for roughly half the world's passenger cars and light trucks.

Its aerospace division is a major supplier to the US military and a key partner on defence programmes such as the F-35 joint strike aircraft in which the UK government has a stake.

Unite union's assistant secretary general, Steve Turner, said Mr Clark should use legal powers to intervene in the deal.

Before Melrose won the bid, Airbus, which is supplied by GKN, said it would be "practically impossible" to give new business to GKN if Melrose's offer was accepted because it damaged long-term investment prospects in the company, which could reduce R&D budgets and limit innovation.

Melrose launched its bid in January, initially at £7bn. It increased that this month to £8.1bn, with up to another £1bn to support the pension fund.

It argued that it could increase GKN's profitability which has been falling steadily over the last five years.

In the run up to the bid, GKN had also suffered a crisis of leadership, with its chief executive-in-waiting, Kevin Cummings, forced to step down after problems in the company's US aerospace division.

The new chief executive, Anne Stevens, a former Ford executive, devised a plan to merge GKN's Driveline with the US car components group Dana to create a new company. GKN would have got a 47% stake in it and $1.8bn (£1.28bn) in cash from Dana.

But Melrose called the plans "panicked and fraught with contradictions".</s>It's all about scale in the automotive supplier market. In a pond full of big fish and highly demanding automotive manufacturers, maintaining a competitive edge in the form of lower production cost is key. Frequently, the path of least resistance towards that goal is industry consolidation. Dana Incorporated (DAN) has been playing this game for years but is now set to take on its biggest target yet: a merger with fellow driveline peer GKN Driveline (OTCPK:GKNLY). Dana recently had to up its offer for the automotive business as Melrose Industries continues to press a hostile takeover attempt. In my opinion, Dana wins out in the end as it has the support of the Board of Directors. Multiple bidder competition points to significant value here, but Dana has the balance sheet and the potential synergies to see that deal through to the end. Folding GKN Driveline into current operations, once it hopefully occurs, is a prime catalyst for shares in 2018.

Market Review, Laying The Framework Of The Bid

Dana manufactures and provides high end driveline products such as axles, driveshafts, and planetary hub gears. Products offered are extensive; the company a near single source provider of products between the transmission and the wheels across a variety of vehicle platforms. Nearly every single major OE producer, whether that be Ford (NYSE:F) or Nissan (OTCPK:NSANY) or Deere (NYSE:DE), sources some or all of its driveline needs through Dana. With that said, I do think investors have a tendency to overstate Dana's dominance in the space. Driveline products are fairly commoditized products at this point, so the parties left standing are there because of scale and lean manufacturing. Another sign pointing to this is the lack of investment: research and development costs often run less than 2% of revenue. So, while barriers to entry are rather high given the cost of equipment and the value of established relationships, there are strong global competitors: BorgWarner (NYSE:BWA), American Axle (NYSE:AXL), Meritor (NYSE:MTOR), ZF Friedrichshafen, and even the OEs themselves all stand ready to jump on any subsection of the market that is generating sizeable returns. In businesses like these, only those that are incredibly well run can even hope to see their EBITDA margin grow into the low teens; high single digit margins are far more likely.

Driving efficiency improvements on the manufacturing line, squeezing lower costs out of raw material suppliers, and driving leverage off of the fixed cost base both within the factory line and in the corporate office are far more important to the bottom line than making new strides into new products. Many of these facets of the business are improved via consolidation, so whenever there is ample access to capital, industrials operating in markets like Dana will take advantage to inorganically grow the business. Over the past two years, Dana has made several tuck-in acquisitions in recent years: Warren Manufacturing ($104mm), Brevini (initial 80%, now in totality, for ~$525mm), SIFCO ($70mm), and Magnum ($18mm). These deals, on the net, were small fry compared to the company's recent offer for GKN Driveline.

If the stars align, the acquisition of GKN Driveline is a major deal that will send ripples throughout the automotive supplier space. Based out of the United Kingdom, GKN Driveline is a market leader internationally in many markets that Dana does not compete in currently - a fact that should help the company clear any potential regulatory hurdles. Dana's focus has always been on larger wheelbase passenger vehicles (SUVs, trucks) and in heavier duty vehicles (commercial agriculture and mining, tractor trailers). By comparison, GKN Driveline sees the overwhelming majority of its sales (90%) used in car and crossover builds. While not immediately clear, this also points towards expertise. Dana has little in the way of front wheel drive products, instead mainly focusing on rear or all-wheel drive. By comparison, internationally very few light vehicles are not front wheel drive, so substantially all of GKN Driveline's assets serve a different structure. Certain product components, such as driveshafts that connect the transmission to the rear wheels, are not within the GKN Driveline core competency.

In my view, there are two primary reasons why Dana is interested in GKN Driveline: electronic vehicles and China. GKN Driveline has a substantial presence in electric driveline systems via hybrid transmissions and eAxles. While I hate to parrot industry terms, growing content per vehicle is a very real catalyst for automotive suppliers. In GKN Driveline's legacy front wheel drive systems, its product applications are pretty light: axles, fluid systems, boots. As a result, revenue and earnings per vehicle sold are low. By comparison, electric vehicles tend to be all wheel drive - the instant torque of electric motors and front wheel drive don't play well together - so the end result is higher average sales per vehicle within battery electric vehicles ("BEVs") or hybrid battery electrics ("HBEVs"). Leveraging this fact, both in term of real earnings and in how the company presents the outlook to the market, should help drive multiple expansion.

Another driver, GKN Driveline has a massive joint venture ("JV") in China with HUAYU Automotive called Shanghai GKN Driveshaft ("SDS"). This JV has been in operation since 1988, making GKN one of the first tier one automotive suppliers to set up shop there. Through management skill or dumb luck, this JV was formed well before China became a major player on the international stage today. That first mover advantage has paid dividends given the long-lasting relationships with in-country manufacturers: over $1,300mm in sales flow through that entity. The market has underappreciated the value of these Chinese assets in the past, and I suspect it is likely still discounting them too heavily as a strong factor for why Dana pursued this deal in the first place.

Within the current offer, Dana will issue 133mm shares of stock ($3,500mm valuation), which will give GKN Driveline shareholders a 47.25% stake in the combined entity. Those shareholders will also receive a $1,740mm cash payout (up from $1,600mm originally), alongside the assumption of $1,000mm of pension liabilities. In total, this values GKN at 8.3x 2017 adjusted EBITDA, a figure which falls to 5.7x inclusive of cost synergies and tax efficiencies. Given the large stock component of the consideration, leverage will remain manageable: 3.1x including the combined pension liabilities of both firms. Sweetening the deal to assuage UK concerns, Dana will domicile in the United Kingdom and implement a $200mm share buyback to improve market liquidity for UK investors forced to exit the firm (the company is heavily owned by institutional investors with targeted investment directives).

Synergies drive the value of this deal. Short-term costs are moderate given the annual savings, so payback will be quick if the company can hit its targets. CEO James Kamsickas has been on the acquisition hunt since taking the helm in August of 2015 with solid results on integration so far. Digesting a deal of this size will be a major undertaking.

By 2020, the combined entity has the potential of generating in excess of $2,000mm in EBITDA. Assuming no deal changes in terms, the enterprise value is about $12,000mm today; a figure that includes the assumed pension liabilities. 6x pension-adjusted EBITDA is historically about fair for Dana, but the firm has seen significant multiple expansion since the doldrums of the 2010-2015 period. Free cash flow would be quite high in that instance so long as the automotive market remains firm. Provided management hits its targets and can close this deal, there is ample room for share price expansion.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.</s>By one o'clock this afternoon the fate of Britain's biggest engineering group, GKN will be decided.

Investors will have voted on whether it is to stay independent or come under the control of turnaround specialist Melrose Industries.

It is the biggest UK hostile takeover bid since Kraft took over Cadbury's in 2010.

Several investors have already said which way they will jump. But they appear evenly divided.

GKN is about as good an advertisement for British engineering as you can get.

Its roots lie in the 18th century industrial revolution and there's not much it hasn't had a hand in making, from cannonballs for Wellington's army to Spitfires, Minis and the Ariane 5 rocket.
• Why the the GKN bid battle matters

Its Driveline business makes systems for roughly half the world's passenger cars and light trucks. VW, General Motors and Fiat Chrysler are all customers.

And it is big in defence, a major supplier to the US military and a key partner on defence programmes such as the F-35 joint strike aircraft in which the UK government has a stake.

However, it's not quite as British as it looks. Its head office is in Redditch in Worcestershire, but of GKN's 58,000 employees, only 6,000 work in Britain. The rest are spread around 30 countries.

Why does Melrose want to buy it?

At the end of last year GKN seemed to have got itself into a mess.

In October it warned profits would be lower than expected, and there was another warning in November. The company announced there was going to be "detailed review" of its US aerospace business and the division's head, Kevin Cummings, would resign.

In the end the results came in better than expected, but there was still an underlying problem - GKN simply wasn't as profitable as it ought to have been. Margins had fallen to 6.4% from 8.2%, and Melrose believed it could do better.

So in January Melrose launched its bid, initially at £7bn, increased this month to £8.1bn, with up to another billion offered to help out the pension fund.

It says it will keep the business together - for now. Its target, it says, is "to re-energise and re-purpose GKN's operations". It says it can beat GKN's own 10% target when it comes to profit margins.

Melrose Industries is a British-based "turnaround specialist", listed on the London Stock Exchange with a market capitalisation over £4bn.

Its strategy is to find "good manufacturing businesses with strong fundamentals" and then "buy, sell, improve" them within three to five years.

Its string of turnaround successes has been hugely profitable. If you had invested £1 in Melrose in 2005 it would be worth £18 today.

Executive chairman of Melrose, Christopher Miller wrote to GKN shareholders explaining his strategy and insisting his firm was not an asset-stripper. "Unlike private equity companies, we do not rely on debt to boost returns and use only modest and prudent levels of leverage, well within UK industrial norms."

But Melrose's record has been tarnished of late by problems at the manufacturer Brush, which it bought eight years ago and where it has invested some £96m. Earlier this month it started negotiations with unions to lay off over a third of its British workforce in Leicestershire.

GKN has proposed far more drastic changes than anything Melrose is suggesting. It will, it says, split itself in two, sell non-core businesses, concentrate on its aerospace division and take steps to revive its margins.

Driveline would merge with the American car components group Dana to create a new company. GKN would get a 47% stake in it and $1.8bn (£1.28bn) in cash from Dana.

This new business would be listed on the New York and London stock exchanges. That, says GKN, would give it the wherewithal to hand shareholders £700m "as soon as practicably possible".

Over the next three years it hopes to return in total £2.5bn cash to investors.

In answer to Melrose's bid GKN said: "Melrose is not the right owner for GKN. It lacks experience in relevant high technology businesses and of investing for the long-term. GKN is a much larger and more complex business than anything acquired by Melrose in the past."

Melrose said GKN's reaction was "panicked and fraught with contradictions".

Who else is worried by the bid?

The Unite union is not happy. In a letter to GKN shareholders it said: "GKN is a major tier one supplier in the automotive and aerospace sectors.

"This means that the company needs to work closely both with manufacturers and with government and make significant investments in innovation for the future.

"These are cyclical industries, and Melrose's experience with Brush has not demonstrated that they have the ability to react to these cycles."

Some of GKNs customers are also worried. Airbus said it would be "practically impossible" to give new business to GKN if the takeover went ahead because it damaged long-term investment prospects in GKN, which could reduce research and development (R&D) budgets and limit innovation.

The government has also stepped in.

Greg Clark, the Business Secretary, wrote a letter to Melrose asking for "commitments, which would need to be binding in the event that your bid was successful". These include maintaining the workforce, headquarters and R&D in the UK, and not selling defence businesses off in the short term.

In reply Melrose said it agreed with the Business Secretary's requests and added: "Melrose has offered a legally binding commitment to the secretary of state to stand behind its intention to hold the GKN aerospace business as it delivers the improvement necessary to unlock its potential."</s>One of Britain's oldest engineering firms has been sold for £8.1bn to a controversial investment firm.

GKN, which has had a hand in making everything from Minis to Spitfires, lost its battle to stay independent.

Melrose Industries, which specialises in turning round troubled manufacturing businesses and selling them on, won the backing of 52% of GKN shareholders.

Business Secretary Greg Clark said Melrose now had to honour its commitments to stay UK based.

Admitting defeat, GKN's management said it would now work with Melrose to ensure the success of the new company.

The battle for GKN drew protests from government, unions and GKN customers.

GKN's board had promised it would overhaul itself and sell off its car parts division, but it was not enough to stop investors agreeing to sell their shares to Melrose.

Christopher Miller, chairman of Melrose, said: "We are delighted and grateful to have received support from GKN shareholders for our plan to create a UK industrial powerhouse with a market capitalisation of over £10bn and a tremendous future."

News of the successful bid sent GKN's share price up over 6% to 450p. Melrose's offer is equivalent to 462p a share.

GKN's businesses cover aerospace and automotive engineering. Its Driveline division makes systems for roughly half the world's passenger cars and light trucks.

Its aerospace division is a major supplier to the US military and a key partner on defence programmes such as the F-35 joint strike aircraft in which the UK government has a stake.

Melrose's strategy it says, is to keep the company together "to improve all of the businesses in GKN, only realising their value once they have reached full potential."

However, what happens afterwards has alarmed politicians and unions and some of GKN's customers.

Mr Clark, the Business Secretary, said: "During the bid, Melrose made commitments which they are bound to honour including investment in research and development and maintaining itself as a UK business."

Paul Everitt, the chief executive of the ADS trade organisation, which represents the aerospace and defence sectors, said: "It will be for government to assess... whether the bid should be referred to the Competition and Markets Authority.

"GKN is an important part of the UK industrial landscape and it is important that its owners continue to invest for the long-term and support high value jobs both directly and throughout its UK supply chain."

Steve Turner, the Unite union's assistant general secretary for aerospace, said: "Unite will be holding Melrose's 'feet to the fire' over concessions it has made in recent days and seeking concrete guarantees on job security, investment and future work in the UK.

"The takeover is far from a done deal though. National security concerns remain not just for the UK, but for the US too, where the Committee on Foreign Investment in the United States is yet to approve the takeover and to whom Unite has made representations."

Before Melrose won the bid Airbus, which is supplied by GKN, said it would be "practically impossible" to give new business to GKN if Melrose's offer was accepted because it damaged long-term investment prospects in the company, which could reduce R&D budgets and limit innovation.

Melrose launched its bid in January, initially at £7bn. It increased that this month to £8.1bn, with up to another £1bn to support the pension fund.

It argued that it could increase GKN's profitability which has been falling steadily over the last five years.

In the run up to the bid, GKN had also suffered a crisis of leadership, with its chief executive-in-waiting, Kevin Cummings, forced to step down after problems in the company's US aerospace division.

The new chief executive, Anne Stevens, a former Ford executive, devised a plan to merge GKN's Driveline with the US car components group Dana to create a new company. GKN would have got a 47% stake in it and $1.8bn (£1.28bn) in cash from Dana.

But Melrose called the plans "panicked and fraught with contradictions".</s>Rachel is a Verdict reporter covering global business, finance, and politics. You can reach her at rachel.dobbs@verdict.co.uk

UK industrial giant GKN has lost its fight for independence after a bitter ten-week bid battle with turnaround specialist Melrose Industries.

GKN shareholders had until 1pm today to vote on whether the engineering group should be sold to turnaround specialist Melrose. Melrose needed a majority of 50.1% to take over GKN and it managed to bring 52.4% of the company’s shareholders on board.

After being snubbed by GKN’s boards, Melrose went directly to shareholders, asking them to decide on the £8.1 billion takeover bid. It is the biggest hostile takeover bid in Britain for nearly a decade.

Ahead of today’s deadline, both sides of the fight stepped up the rhetoric. Appealing to investors yesterday, Melrose said that it was seeking to improve “not only GKN, but the UK economy”.

Mike Turner, GKN’s chairman, hit back saying that Melrose’s attempt to sway shareholders “smacked of desperation”.

Last week, the UK government entered the debate. Greg Clark, the business secretary, wrote to Melrose to say that the bid had sparked concerns over national security (GKN has done work for the Ministry of Defence) and demanding binding commitments from Melrose.

Trade unions and some MPs (including Liberal Democrat leader Vince Cable and Jack Dromey, Labour’s shadow work and pensions minister) accused Melrose of seeking only to strip GKN’s assets for short-term profits and said the decision would jeopardise jobs.

Melrose responded by promising to keep its headquarters and stock market listing in the UK for at least five years, to keep GKN Aerospace operational until April 2023 and to maintain current levels of research and development spending at the company.

Yesterday, in a statement, Melrose claimed to have “a commitment to GKN that its current board sadly lacks”.

GKN came into the Melrose’s sights when its share price collapsed last October, following a shock profits warning over problems with its aerospace division. It then began to struggle with leadership.

Who are the two companies?

GKN is one of the UK’s oldest engineering companies, beginning as an ironworks in south Wales in 1759, right at the beginning of the industrial revolution. Now, with 250 years of experience, it is the third-largest engineering company in the FTSE 100, trailing just BAE Systems and Rolls Royce.

The two main divisions of GKN are GKN Aeropspace and GKN Driveline.

The former manufactures aircraft components for makers including Boeing and Airbus, while the latter makes drive lines for car makers including Volkswagen, Ford and Jaguar Land Rover. Worldwide, GKN employs around 60,000 people, with 6,000 employees in the UK.

Melrose Industries was established in 2003 with the aim of buying and rejuvenating under-performing companies. Its slogan is “Buy, Improve, Sell” and, since its inception, its stock market valuation has grown from £13 million to £4.4 billion.

Melrose’s previous major acquisitions generated a total shareholder return of 3000% since it was floated on the market. However, its current attempt to acquire GKN has been mired in controversy.</s>Melrose Industries has stressed its commitment to improving "not only GKN, but the UK economy" in a last-ditch effort to sway investors ahead of a vote by shareholders on Thursday.

The turnaround specialist's comments follow an exchange of letters with Business Secretary Greg Clark, whose calls for "binding" agreements over its proposals for GKN sparked a raft of assurances from Melrose a day earlier, including plans to keep the firm listed and headquartered in the UK.

"Melrose fully stands behind its plan to work for the improvement of not only GKN, but the UK economy as well," the company said in its latest comment on Wednesday.

Melrose said its "constructive discussions" with the government minister and the exchange of letters demonstrated a commitment to GKN "that its current board sadly lacks".

"Melrose has offered a legally binding commitment to the Secretary of State to stand behind its intention to hold the GKN Aerospace business as it delivers the improvement necessary to unlock its potential," the company added.

It is the latest salvo in a tit-for-tat battle over Melrose's £8.1 billion hostile takeover bid ahead of the shareholder vote.

GKN investors have until 1pm on March 29 to cast their ballots on the controversial deal.

Melrose said earlier this week that it was ready to make a five-year commitment to the business, having agreed with the Takeover Panel to maintain its UK listing and headquarters and ensure that a majority of its directors are resident in the UK.

It would also make sure that the Aerospace and Driveline divisions retain the rights to the GKN name and maintain GKN's current level of research and development investments.

That was alongside a pledge to guarantee it would not sell the Aerospace Division before April 2023.

Melrose's letter responded to a number of Mr Clark's concerns, having also called for GKN to continue as a UK taxpayer, pay suppliers promptly, make arrangements for current and future pensioners, and investment in the training and development of the workforce.

He also stressed that a short-term approach would not be in the best interests of defence and national security, adding that he would like Melrose to rule out a short-term sale of the business barring Government consent.

GKN responded to the exchange of letters by highlighting risks the business would face under Melrose ownership, including uncertainty of its Driveline business which did not receive any commitments that were otherwise granted to the Aerospace division.

"In other words, the future of GKN Driveline becomes immediately uncertain under Melrose's ownership in contrast to its certain future under the Dana/GKN Driveline combination."

That was on top of what it said were shortcomings over Melrose's pensions proposals that would lead to higher debts and gross pension liabilities of £4.3 billion "which would be borne by shareholders and subject to significant volatility."

GKN chief Anne Stevens said: "The fact that Melrose appears to have been forced into these undertakings shows once again that it would be an unsuitable owner of GKN.

"Melrose is asking shareholders to consider a set of last-minute undertakings which leave considerable uncertainty and do not adequately address the need for long-term shareholder value creation.

"If this is how Melrose behaves when it is bidding for GKN, how can it be trusted if it gets its hands on the wheel? The Melrose offer remains the low-value, high-risk option for shareholders."</s>LONDON (Reuters) - Melrose (MRON.L) on Tuesday committed to a five-year ownership of GKN’s (GKN.L) aerospace division if it succeeds in its hostile bid for the engineering company after the British government made a rare intervention in the high-profile takeover battle.

Wading in to a corporate fight that has split investors, business minister Greg Clark wrote to Melrose to say the time had come for the turnaround specialist to prove that its hostile 7.9 billion pound ($11.17 billion) bid would not damage the country’s defense capabilities or GKN itself.

Britain touts itself as having one of the most open economies in the world but has toughened its takeover rules to force bidders to stick to the promises made during bid battles following a public backlash.

Clark said he intervened due to GKN’s role at the heart of Britain’s autos and aerospace industries and as a recipient of government-sponsored and defense-related contracts.

“In this case I am also mindful of the business model which Melrose operates and its history of acquiring, improving and selling businesses,” he wrote.

“Whilst this approach can have an important and beneficial role to play, tensions could arise between this approach and the need for long-term investment and stability.”

In response, Melrose said it would keep the aerospace division of GKN for at least five years and would increase spending on apprentices and research and development by making an innovation center near Oxford a global center of excellence.

Melrose said it hoped this would reassure the government.

The government only has limited grounds to block takeovers, and said it would examine the final Melrose bid to see if national security concerns were sufficient to warrant such an intervention.

They also mark the latest twist in a takeover battle that has turned into a tit-for-tat spat with both sides talking up their offers as they seek to secure the backing of investors, customers, pension trustees, unions and government.

Investors have to choose between the Melrose deal and GKN’s plan to merge its autos business with U.S. group Dana (DAN.N). They have until 1200 GMT on Thursday to decide.

Melrose Chief Executive Simon Peckham wrote in a reply to Clark that Melrose was focused on improving the good but underperforming businesses it acquires.

“We invest in R&D. We invest in our people, in skills and training. We boost productivity. It is partly through this investment that we make the operational improvements and productivity gains that are central to our strong track record.”

GKN, a mainstay of Britain’s engineering sector, makes parts for the U.S. aviation industry, such as the Boeing 737 jet and Black Hawk helicopter, as well as components for Volkswagen and Ford cars.

The hostile Melrose bid has prompted criticism from politicians who are concerned that after improving GKN, Melrose could break it up and sell parts to foreign buyers.

That could provide Clark with a more formal mechanism to block the takeover, if defense officials raise concerns about national security - one of only a handful of areas where the government has statutory powers to intervene.

“”At the close of the bid when all of the facts are known ... the Ministry of Defence and other agencies will make an assessment and will advise me on whether or not there are grounds for intervention on national security,” Clark told parliament.

Britain’s right-leaning press have championed GKN’s management, calling on the government to prevent “vultures” from buying a company that helped make Spitfire fighter aircraft in World War Two.

Melrose said in its response to Clark that it reserved the right to list the Aerospace division on the stock market and also said that were it to be approached by a buyer in the five year period, it would seek the approval of the government to sell.

It also said its commitment to spend at least 2.2 percent of sales on research and development should be seen as a “floor, not a ceiling on our ambitions”.

In its defense against Melrose, the more than 250-year-old GKN has developed a plan to improve its operations, return cash to shareholders and merge its autos business with Dana to create a standalone company listed in London and the U.S..

On Monday, Dana increased the cash portion of its bid for GKN’s Driveline auto business by $140 million.

Two of GKN’s biggest investors are on opposing sides in the battle, with Elliott Advisors and its 3.8 percent interest backing Melrose, while Columbia Threadneedle with a 3.4 percent stake is backing GKN’s plan.</s>U.K. engineering company GKN Plc lost a hard-fought battle for independence after shareholders opted for a 8.1-billion-pound ($11.2 billion) offer from Melrose Industries Plc in a takeover that attracted scrutiny from government, a key customer and unions.

Melrose received 52 percent of voting rights for its cash-and-stock bid, the turnaround specialist said in a statement on Thursday, sending GKN shares to a record. A separate deal struck by GKN to sell its automotive driveline division to U.S.-based Dana Inc. for $6.1 billion will now fall by the wayside.

The outcome brings to a close the biggest hostile takeover struggle between U.K. companies in a decade. Since Melrose made a first approach in January, both companies mounted aggressive campaigns to woo shareholders to their different proposals for the automotive and aerospace parts supplier. Melrose’s bid was triggered by upheaval at GKN late last year including a profit warning and the subsequent firing of its incoming CEO.

“We are looking forward to working with GKN’s talented workforce and to delivering for customers and all stakeholders,” Melrose Chairman Christopher Miller said in the statement. “Melrose has made commitments as to investment in R&D, skills and people and we are very excited about putting these into action.”

The U.K.’s aerospace industry lobby voiced concern. “This is a worrying time for GKN, its employees, pensioners, suppliers and customers,” ADS head Paul Everitt said by email. “GKN is an important part of the UK industrial landscape and it is important that its owners continue to invest for the long-term.”

Melrose’s sweetened offer consisted of 81 pence in cash and 1.69 shares of Melrose for each GKN share. That values the company at about 471 pence a share, about 42 percent above where GKN traded before Melrose’s interest became known. Shares of GKN rose 9.5 percent to close at 463 pence in London. Melrose shares rose 3.5 percent to 231 pence.

“The board of GKN now intends to work with Melrose to ensure the success of the enlarged company, in the interests of all stakeholders, including employees, customers and shareholders,” GKN said in a statement that recommended all shareholders now accept the bid.

The acquisition will be the biggest test yet for the executives who run Melrose, a company that listed on the stock market in the U.K. in 2003 for the express purpose of buying industrial companies, improving the way they’re run and then selling them.

The buyer will take control of GKN after having made numerous pledges to assuage concerns from stakeholders like the U.K. government and unions. It has promised to keep its headquarters in the U.K., a majority of directors as residents in the country and not to sell the aerospace division for at least the next five years.

U.K. Business Secretary Greg Clark had raised concerns about Melrose’s short-term business model and told parliament Tuesday he would decide whether there’s “grounds for intervention” once the bid is closed. Customer Airbus SE has warned Melrose that any reduction in spending on research and development at GKN would make it “practically impossible” for it to hand the company new work.

Miller, Executive Vice Chairman David Roper and CEO Simon Peckham founded the company after working together at manufacturer Wassall Plc. The men will need to address morale among GKN employees after a particularly acrimonious few months of criticism aimed at GKN’s management and past performance. The target is the biggest and most ambitious in Melrose’s history, and it’s the bidder’s first foray into an aerospace manufacturing firm this high up in the supply chain.

GKN CEO Anne Stevens’s plans for the company had included selling its automotive business to U.S. supplier Dana for a sweetened $6.1 billion cash-and-share bid as well as other disposals that Melrose had characterized as a “hasty fire-sale.”

"We are, of course, disappointed by today’s outcome,” Dana said in a statement. “This has always been an opportunity, not a required or critical asset.”
British automotive and aerospace engineering firm GKN (founded in 1759) is sold to British-based investment company Melrose Industries for £8.1 billion.