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Melrose hires bank for €350m OHP auction

By Mark Kleinman, City editor
The industrialists who paid ?8bn this year to take control of one of the most famous names in British engineering have hired bankers to sell another of GKN's most substantial businesses.
Sky News has learnt that Melrose Industries has asked RW Baird to sound out buyers for Off-Highway Powertrain (OHP), a division of GKN which provides driveshafts and gearboxes for vehicles used in the agriculture and mining sectors.
Melrose, which will report half-year results on Thursday, is said to have put a price tag of about €350m on the OHP unit.A sale process is expected to launch in the next few months.The top team at Melrose is also kicking off an auction of GKN's Powder Metallurgy business, which could fetch about €2bn, as Sky News revealed during the summer.Rothschild and Jefferies, the investment banks, have been given the mandate to handle that process.Together, the disposals could return more than one-quarter of the cost of the hostile takeover of GKN, which turned into one of the City's most fractious bid battles for years.Last week, it emerged that Melrose was courting pension buyout firms to take on a big chunk of GKN's pension liabilities.Discussions with several firms specialising in Pension Risk Transfer (PRT) have been going on for several weeks and are understood to involve firms including Aviva and Scottish Widows, which is owned by Lloyds Banking Group.Sources close to the situation said on Friday that Melrose would only strike an agreement to offload the smaller of GKN's two pension funds, which has liabilities of about €500m, if it could secure an attractive price.Even if it does proceed with a deal, Melrose will still hold onto the larger of GKN's two pension schemes, which became a flashpoint in the hostile takeover of the 250-year old automotive and aviation group earlier this year.
Melrose eventually promised to inject up to €1bn of cash into the GKN schemes, which collectively have roughly 32,000 members.The pledge included a formula which guarantees the retirement pots 10% of the proceeds from any disposal of GKN assets and 5% from other Melrose businesses.Melrose's €8bn raid on one of British industry's most famous names triggered a political firestorm which abated only when Greg Clark, the business secretary, secured binding undertakings from the Melrose board about their stewardship of GKN assets.Under the terms of its deal with the government, Melrose must give ministers "early visibility" of potential bidders for any GKN operations with national security implications.Mr Clark or his successors would also have a veto over any such sale.Melrose also offered a number of other commitments such as retaining GKN's aerospace division for at least five years, and maintaining research and development spending at pre-takeover levels.The team of businessmen who founded Melrose have enjoyed huge success with their approach of buying, improving and selling poorly performing industrial businesses.However, their hostile bid for GKN was on an altogether different scale ‎to any of their previous acquisitions.
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GKN's board, led by the City veteran Mike Turner, claimed that Melrose's team had insufficient expertise or long-term focus to manage aerospace and automotive businesses with global customers such as Airbus and Jaguar Land Rover.A Melrose spokesman declined to comment on Baird's appointment to sell OHP.
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