GKN to combine Driveline division with Dana in $6.1bn deal

GKN has agreed to combine its automotive business, Driveline, with US-based Dana in a deal valued at around $6.1bn, as it looks to fend off a £7.4bn hostile bid from turnaround specialist Melrose Industries.

Under the terms of the agreement, which GKN said represents an acceleration of its strategy to separate its aerospace and auto businesses, the company will receive cash proceeds of $1.6bn. GKN's shareholders will also receive 47.3% of the fully diluted share capital of the newly formed company, Dana plc, at completion of the proposed transaction.

Dana plc will be listed on the New York Stock Exchange and headquartered in Maumee, Ohio.

The engineer said the deal brings together two "highly complementary" businesses and creates a global leader in vehicle drive systems across all three mobility markets - light vehicle, commercial vehicle and off-highway.

The companies expect to achieve annual run-rate synergies of $235m (£170m) by the end of the third year following completion of the deal. This is in addition to the GKN Driveline benefits expected as part of Project Boost.

GKN reiterated its belief that Melrose's offer "fundamentally undervalues" the group.

"The board of GKN believes the proposed transaction, together with the prospects for GKN Aerospace, provides significantly greater value for GKN's shareholders than the Melrose offer.

"The proposed transaction values GKN Driveline at a 2017 EV/EBITDA multiple of 7.5x, similar to the 2017 EV/EBITDA multiple implied by the Melrose offer for the entire issued share capital of GKN of 7.7x. Aerospace and powder metallurgy transactions are typically completed at significantly higher multiples than transactions within the automotive supplier sector.

"The proposed transaction also provides GKN shareholders with a significant equity stake in a global leader in vehicle drive systems with significant synergies."

Union Unite said it would be seeking further detail on the deal with Dana, in addition to clarity on the future of GKN's aerospace unit.

Unite assistant general secretary for aerospace, Steve Turner, said: "While we’ve been aware of discussions taking place, as always the devil will be in the detail of this proposed merger. Unite will be seeking urgent meetings with the company to understand its implications for jobs, future products, work content and investment across GKN’s aerospace and automotive divisions.

"GKN aerospace workers will want to know how the proposed merger will affect them in particular, what any deal means for jobs and pensions, alongside existing and future investment strategies.

"A smaller aerospace group could also be vulnerable to future predatory and hostile bids and Unite will want to see protections in place to safeguard the group from such threats.

"Unite will also be pressing Melrose on what it now intends to do with its debt-fuelled takeover bid for the group as a whole when we meet with the company next week."

At 1230 GMT, GKN shares were up 1.2% to 426.60p while Melrose was up 0.5% to 217p.