Update: Melrose Industries Plc raised its hostile bid for GKN Plc by 9% in a last-ditch attempt to woo shareholders to its buyout proposal. GKN said Monday it will study the new proposal.
U.K. engineer GKN Plc agreed to sell its automotive unit to U.S.-based Dana Inc. in a $6.1 billion transaction aimed at repelling a hostile takeover from investment group Melrose Industries Plc.
GKN shareholders would get stock in the new group valued at $3.5 billion, plus $1.6 billion of cash, and Dana would assume $1 billion of pension debt, the companies said in a statement Friday. Dana investors will hold about 52.75% of shares in the renamed Dana Plc.
The agreement strengthens GKN’s defense against Melrose by giving shareholders a concrete proposal to weigh against the unsolicited approach for the whole of GKN, worth about 7.4 billion pounds (US$10 billion). The deal would add heft to Dana’s driveline business as automakers seek to cut costs, while transforming the remainder of GKN into a pure aerospace business.
The competing deal will “put significant pressure on Melrose to raise its offer,” said Sandy Morris, an analyst at Jefferies International in London.
Shares of GKN rose 3.3% to 435.1 pence at the close in London, while Melrose advanced 4%. Dana gained 4.2% to $27.28 around midday in New York.
GKN said last week that it was in talks with Dana. The deal, which is subject to Melrose’s offer expiring or being withdrawn, would create an enlarged group that would remain listed in New York but domiciled in the U.K.
“Today’s announcement changes nothing and is a further admission of the management failure of GKN,” Melrose Chairman Christopher Miller said in a statement adding that the merger would involve a long and uncertain antitrust process. “A hasty sale of one of Britain’s most important businesses will leave it listed overseas, run by a foreign management team and rebranded as a U.S. business.”
Redditch, England-based GKN had already begun demerging its aerospace and automotive arms as it sought to fight off Melrose. The unwanted suitor, which has previously dismissed the break-up plans as “rushed” and unnecessary, has room to increase its bid, analysts have said. It declined to comment further following the GKN-Dana announcement.
GKN said returns from the auto-unit sale would provide “significantly greater value” to shareholders at 7.5 times 2017 earnings, compared with Melrose’s 7.7 times multiple for the whole of the company. GKN will continue to pursue the sale of its powder-metallurgy arm and would still deliver up to 2.5 billion of cash returns to shareholders over the next three years, it said.
Dana Chief Executive Officer James Kamsickas said the companies have a long history of cooperation and that GKN’s driveline business is complementary to its own activities in axles, driveshafts and transmissions.
Maumee, Ohio-based Dana will get a more diversified global business with a presence in Asia and a bigger piece of the emerging electric drive business. Dana is currently more focused on North American and Europe, where it got 81% of its revenue last year.
“This transformative and strategic transaction solidifies Dana as a world leader in vehicle drive systems and establishes a leading position in electric propulsion, which we see as the future of vehicle drivetrains,” Kamsickas said.
The deal and a sale of the powder-metallurgy business would transform GKN into pure-play aerospace business focused on supplying airframe and engine housing structures Boeing Co. and Airbus SE.
By Benjamin Katz