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Advisory group warns Melrose shareholders against hostile bid for GKN

Turnaround group Melrose Industries has stumbled across another potential hurdle to buying out engineering giant GKN, as an influential advisory group today advised shareholders to oppose the its hostile bid.

Shareholder consultancy Pensions & Investment Research Consultants (Pirc) told investors in FTSE 250-listed Melrose that there were "various issues" surrounding the proposed takeover that "cannot be overlooked".

These include the lack of cooperation Melrose has received from the GKN board, political opposition to the deal in the US and the UK based on issues such as national security, GKN's own plans to defend itself against the bid by promising shareholders £2.5bn of cash, and Melrose recently reporting a second consecutive year of losses in its own house.

Read more: Melrose's £7.4bn bid for GKN has been approved by US and Canadian regulators

"One of the risks of the acquisition is the further increased financial indebtedness associated with this bid," explained Pirc in a memo.

GKN, meanwhile, released results today which showed the company's profit had soared while it had been battling Melrose's approaches – contrary to expectations.

Melrose's obstacles

Though Melrose has been given the green light by US competition regulators, it is still waiting to hear the final verdict from the Committee on Foreign Investment in the US (Cfius) which can block deals on widely defined national security concerns. GKN produces components used in a number of military aircraft.

The UK's Department for Business, Energy and Industrial Strategy (Beis) is also examining the deal through the lens of national security, though some politicians have called for ministers to consider widening the grounds on which they can intervene in takeovers to include wider public interest factors.

Meanwhile, GKN's shareholders may also decide to rebuff Melrose in favour of the company's own turnaround plan. Dubbed "Project Boost", GKN has said it will deliver a recurring annual cash benefit of £340m from the end of 2020.

Read more: GKN condemns Melrose's "low price and high risk" offer as it publishes formal document pressing shareholders to turn down the £7.4bn bid

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