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GKN reveals ?4.4bn merger of automotive business as it fights off hostile Melrose bid

GKN has revealed a ?4.4bn plan to merge its Driveline automotive business with US rival Dana, throwing into doubt a ?7.4bn hostile takeover bid from Melrose.
The Dana deal - which needs to be voted on by GKN shareholders - will bring together two businesses that produce drive train parts such as axles for vehicles, along with systems for electric vehicles.
Under the terms of the cash and shares proposal, GKN will hold 47.25pc of the merged business and Dana the remainder.
GKN
Based on Danas share price on March 8, the deal is worth a total of ?4.4bn, and the company will isue $3.5bn in new shares to support it. Some ?2.5bn of the total comes from Dana shares, with GKN also receiving ?1.2bn cash and Dana taking on ?700m of GKNs pension scheme.
If the merger goes ahead, it is expected to deliver ?170m of savings by the third year.
Mike Turner, GKN chairman, said the tie-up would create a global leader in the vehicle drive trains, with GKN shareholders owning almost half of an automotive business with $14bn in annual revenues.
The synergies between these two businesses and our complementary product portfolios make this a great deal for GKN shareholders, he added.
GKN reveals ?4.4bn merger of automotive business as it fights off hostile Melrose bid

GKN chairman Mike Turner called the Dana merger a "great deal" for shareholders

Credit:
Martin Pope
Dana chief executive James Kamsickas described the deal as a transformative and strategic move. He said: It 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.
The combined business would be led by Mr Kamsickas and Dana's finance director, and two new board positions would be added which would be filled by appointments made by GKN. The company would retain a NYSE listing but be domiciled in the UK.
FTSE 100 automotive and aerospace parts manufacturer GKN is currently fighting off a hostile bid from turnaround investor Melrose. News of the ?7.4bn cash-and-paper bid, which would leave GKN investors with 57pc of the combined companyn sent GKN shares surging by 30pc in January.
FTSE 250 firm Melrose, which says it "buys, improves and sells" failing companies,claims GKN has failed to deliver on profits and it could boost returns to shareholders by taking control.
GKN reveals ?4.4bn merger of automotive business as it fights off hostile Melrose bid

GKN is a world leader in drive trains for vehicles

Credit:
GKN
The takeover battle has become increasingly bitter. There have been claims that Melrose does not have the experience to handle such a large business and its sensitive defence contracts, and that it would cut jobs to make efficiencies.
GKN management, led by Anne Stevens, hasrevealed its own Project Boost plan to get the company back into shape, including splitting the business up.
The massive pension scheme at GKN - which has a ?1.1bn deficit - has also been a focal point, with fears over how it could be supported under a different regime.
Because of GKN works on defence contracts, national security has also been a factor in some concerns about the takeover. MPs have also questioned whether letting Melrose take control - with its plans to ultimately sell the business - could harm Britains industrial footprint, with fears the UK could lose a world-leading business.
In numbers | GKN
GKN linking up with Dana could make Melroses approach far more challenging, with the deal showing the current management are willing and capable of making major changes at the almost 260-year-old business.
Sources close to Melrose pointed out that shareholders must give the Dana agreement their support and questioned the US companys suitability as a partner, noting that it went through bankruptcy a decade ago, something which the companydid so voluntarily under US Chapter 11 rules which allowed it to restructure.
One person with knowledge of Melroses thinking added: They are giving up almost 53pc of the business to an American business, while the Melrose offer leaves 57pc of it in the current shareholders hands.
In a statement, Melrose chairman Christopher Miller said the proposed Danamerger "changes nothing" and was structured in a way that is "prejudicial to GKN shareholders interests".
Melrose also claimed that arrangement would mean GKN investors receiving US-listed shares, "which many would neither wish or be able to hold" and could have tax implications, unlike its offer.
Independent industrial analyst Howard Wheeldon welcomed the news saying there was "no better partner for GKN than Dana", noting that two companies already have joint ventures.
The proposed tie-up is also likely to make it much harder for Melrose to win the takeover battle, he added.
"This changes the whole dynamic," Mr Wheeldon said. "It shows GKN's management have listened to what shareholders want and essentially done the sort of thing Melrose is proposing but much faster and with no risksto the business."
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