On Monday morning, the race to decide the future of FTSE 100 aerospace and automotive engineering group GKN (LSE: GKN) entered its final stage. Bidder Melrose Industries announced a final offer valued at £8.1bn, or 467p per share. That’s around 10% more than the original offer in January.
Today’s bid follows the news on Friday that GKN has agreed a $6.1bn deal to sell its Driveline automotive business to US peer Dana Inc.
As a GKN shareholder, I now have the chance to decide whether to accept the Melrose offer. In this article I’ll explain what I’m planning to do, and why.
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What’s this offer worth?
Melrose wants to buy GKN with a cash and stock offer which it says values the group at £8.1bn, or 467p per share.
However, this is not a cash deal. GKN shareholders would receive 1.69 new Melrose shares and 81p in cash for each of their shares. At the time of writing, this equates to an offer price of 449p per GKN share.
The value of the Melrose bid will rise and fall in line with the turnaround specialist’s share price. GKN management says it believe the business is worth more than 500p. It has published a defence document today which values the group’s business at 503p, on a sum-of-the-parts basis.
I think it’s probably fair to assume that Melrose management has a similar view, based on today’s offer.
An uncertain outcome
Melrose has made clear that today’s price is final and “will not be increased under any circumstances”. GKN shareholders have until 29 March to decide whether to accept.
The question for shareholders is which management team they trust to deliver the next 50p of value above the Melrose offer.
I’m impressed by Melrose’s track record of success, which has seen it generate a 3,000% return for shareholders since 2003. However, I’m also aware that GKN’s new chief executive, Anne Stevens, has a very strong track record.
From what I’ve heard, there isn’t a clear consensus view among big institutional shareholders about which outcome they prefer.
One downside is that if Driveline is sold to Dana, GKN shareholders will end up holding US-listed Dana shares. Some fund managers won’t be permitted to hold foreign shares, so there could be heavy selling pressure in the market.
I’d imagine that a facility might be available to allow small private investors like us to sell their Dana shares without having to take delivery of them. But as small shareholders, our votes are also likely to be irrelevant. Big fund managers will be making this decision for us.
What I’m going to do
My plan is to do nothing for now. If the Melrose offer is accepted, I can decide then whether I want to own Melrose shares, or sell my GKN stock into the market.
If the Melrose offer fails, then I’ll hold onto my GKN stock and wait for the group to publish its interim results in the summer. These should provide me with more information on the group’s turnaround before I have to decide whether I want to vote in favour of the Dana deal, which isn’t expected to be approved until Q4.
Right now, I think the best decision is to do nothing.
