29 Mar 18. The FT reported today that GKN narrowly lost its fight for independence on Thursday after a bitter 10-week bid battle that saw politicians, unions and industry rally to the side of the 259-year-old engineering company. Melrose Industries, the buyout group founded in 2003, declared victory after investors holding 52.43 per cent of GKN’s equity backed its £8bn cash and share bid.
The battle went right to the wire with both sides saying the outcome was too close to call just hours before the result. GKN’s fate appears to have been sealed by the more than 20 per cent of shares controlled by hedge fund and other short-term investors.
Christopher Miller, Melrose chairman, said on Thursday the group intended to create ”a UK industrial powerhouse with a market capitalisation of over £10 billion and a tremendous future” ”Let me assure you that GKN is entering into very good hands,” Mr Miller said. “Melrose has made commitments as to investment in R&D, skills and people and we are very excited about putting these into action. GKN is expected conceded defeat in a statement later today. However the narrowness of Melrose’s victory will be seen as a consolation for the unexpectedly assertive defence by one of the UK’s oldest engineering companies.
Recommended GKN vs Melrose poses key test for UK priorities Lex view: GKN v Melrose – why UK must stay open for business UK seeks eleventh-hour assurances from Melrose on GKN bid The result draws the curtain on the UK’s biggest firm hostile bid in almost a decade, since Kraft pounced on Cadbury in 2009. It is expected to raise questions over the rights of short-term investors to decide the fate of UK companies, and over the government’s ability to protect important manufacturing businesses from opportunistic bids. GKN is a key investor in future aircraft wing technology, a focus of the UK’s industrial strategy.
The fight over the future of GKN sparked a political outcry, transforming the aerospace and automotive parts supplier into a symbol for the vulnerability of Britain’s industrial base as the UK prepares to quit the EU. The controversy prompted the UK government to intervene, with revelations this week that it had demanded the right to veto the sale of GKN’s defence business should Melrose win despite the fact it has no golden share. Melrose’s business model of “buy, improve, and sell” underperforming industrial companies within three to five years has come under fire from MPs and GKN’s own customers, who have questioned whether the new owner will invest for the long-term. Melrose has repeatedly insisted it intends to maintain investment at least at GKN levels and rejected accusations that it is an asset stripper.
Melrose will now have just over three weeks to win approval for its takeover from US regulators. Although this condition has been waived by the buyout group, US authorities could still demand undertakings from the buyer.
BATTLESPACE Comment: Both sides put up a good fight but the writing was on the wall when Elliot backed the Melrose bid, who seemed to be in front form the start with GKN playing catch up. From a stock market point of view there is little doubt that investors will gain more in the short term from the Melrose offer but in the long term we await whether the Melrose strategy of extracting value will give GKN shareholders the added value Melrose has promised. From a family point of view it is a sad day as it end the independence of GKN founded in 1902 and one of the few remaining members of the FT 390 Share Index to remain independent.