Highlights
· Final offer valued at 467 pence per share, valuing GKN at £8.1 billion
· GKN shareholders to own 60% of Melrose, a UK listed manufacturing powerhouse, and receive £1.4 billion in cash
· Attractive immediate premium of 43%
· All recent attempts to engage in constructive discussions have been refused by the GKN Board
· Dana transaction is prejudicial to GKN's UK shareholders and is, in our view, a bad deal for other stakeholders including UK PLC
· Deadline for acceptances is 1.00 p.m. on Thursday, 29 March 2018
· Offer will not be increased under any circumstances
Set out below is a letter from Christopher Miller, Chairman of Melrose, to be sent to GKN Shareholders in the Final Offer Document:
Dear Shareholder
Much has been said and written since 12 January 2018 when the GKN Board made our approach public. We are nearing the end of the customary offer timetable and it is now time for you to decide.
On the one hand you can join us on a journey of value creation by investing in a UK listed manufacturing powerhouse worth over £10 billion today and receiving £1.4 billion of cash.
On the other hand your Board is attempting a hasty fire-sale of GKN businesses before they have been given a chance to reach their potential and with damaging consequences, we believe, for all stakeholders.
The potential transaction with Dana, if it is allowed to go ahead in the last quarter of this year, would leave you with a minority stake in a foreign listed group run by a Dana management team based in Ohio. Many of you may not be able to hold the shares being offered by Dana as part of the consideration as they will not be listed in the UK. It is surprising that the GKN Board would recommend such a transaction knowing that it is likely to require a forced sale of Dana shares, a fact that will be anticipated by the US markets. Private UK shareholders should also be aware that they would be liable to income tax on the value of any new Dana shares they receive. This transaction would involve a lengthy and uncertain completion process, including anti-trust clearances in the EU, US and China, as well as Dana's shareholder approval, which is not expected until the last quarter of 2018.
The outcome of the Disposals would leave behind a GKN Aerospace business burdened by a disproportionate, and very substantial, amount of gross pension liabilities, inappropriate for the size of the underlying business. We believe this transaction poses real risks for GKN pensioners and employees in both Driveline and Aerospace and would be a bad outcome for UK Industrial Strategy.
The GKN Board has admitted their failure to manage your businesses, most recently evidenced by its full year 2017 performance which fell short of (already lowered) consensus expectations, delivering only £1 million of additional profit despite an increase in sales of approximately £1 billion.
The GKN Board has had four conflicting strategies for GKN in the last two months:
· Their initial “4Ps” strategy (1 February 2018); abruptly abandoned without as much as a backward glance
· Within approximately two weeks they announced the details of Project Boost to improve margins by 2020 and including the hasty sale of Powder Metallurgy, previously referred to as “a gem”
· This was then followed by plans for a formal demerger to take place in 2019
· Finally they announced a proposed sale of Driveline to a foreign buyer, scheduled for the fourth quarter of 2018
As recently as January this year, the GKN Board urged shareholders to retain the full benefits of the “clear upside potential” in GKN – instead, it is now recommending a hasty sale of two of its three largest businesses.
We continue to believe that Melrose has the right team to deliver the fundamental cultural change that GKN so desperately needs, maximising the benefit for GKN's shareholders, employees, customers and pensioners, and for UK industry as a whole. We have a clear plan; GKN does not. We note that the GKN management team has adopted many of the ideas that we set out in our initial approach in terms of its strategy for the only business it is not scrambling to sell.
From the very beginning, our preference has been to reach an agreement rather than carrying out a public debate. We have recently made attempts to engage in constructive discussion with the GKN Board with a view to agreeing the terms of a recommended offer. Your Board has unequivocally declined each time to enter into any such discussions with us and, as recently as Friday 9 March, was unwilling to even enquire on your behalf as to the terms of any revised proposal, a decision that no doubt you will find both surprising and disappointing.
Instead of £1.4 billion in cash and a majority investment in a stronger combined Melrose / GKN business, it appears the GKN Board prefers a minority stake in a foreign business (Dana) with no GKN management involvement. The GKN Board is suggesting this is the best option for shareholders, employees, pensioners and other stakeholders.
In the interests of decisively resolving the future of GKN, we are pleased to set out the terms of an increased and final offer which would give GKN Shareholders 60 per cent of the Enlarged Group and £1.4 billion in cash.
Under the terms of our Final Offer, as a GKN shareholder you will receive:
|
81 pence in cash |
For each GKN Share you hold |
|
and 1.69 New Melrose Shares |
In addition, GKN Shareholders on the register on 6 April 2018 will be entitled to receive the final dividend of 6.2 pence per GKN share as announced by the GKN Board on 27 February 2018 (the “Announced Dividend”).
Based on Melrose's Closing Price of 224.7 pence per Melrose Share on 9 March 2018 (being the last Business Day before the date of this Announcement), the Final Offer, together with the Announced Dividend:
· values each GKN Share at 467 pence;
· values the entire issued and to be issued ordinary share capital of GKN at approximately £8.1 billion; and
· represents an attractive immediate premium of approximately 43 per cent to the Closing Price of 326.3 pence per GKN Share on 5 January 2018 (being the last Business Day prior to the approach made by Melrose to the GKN Board in connection with the Offer).
We are more convinced than ever that the Melrose team, who have decades of experience in successfully transforming businesses, are the only real choice of team to re-energise and re-focus GKN to unlock its full potential.