Melrose works to further convince GKN shareholders

Melrose Industries released a response to GKN late on Wednesday morning, after the latter outlined its ‘Project Boost’ strategy to return up to £2.5bn to shareholders over the next three years.

The FTSE 250 company has been locked in a war of words with the GKN board as it attempts to take over the firm, with GKN’s promise of a cash payout seen as a bid to convince shareholders to reject Melrose’s advances.

Melrose said the Project Boost announcement was a “stark admission” of GKN's underperformance over many years, and a validation of its own diagnosis.

It asserted that, hidden away was also an acknowledgement that GKN's group trading profit margin for 2017 of 7.4% was below consensus forecast

“The fundamental transformation in culture and approach needed to improve GKN is only possible with a change of control, new leadership and fresh thinking,” the Melrose board said in its statement.

It noted that GKN was targeting the prospect of a cash payment of up to £2.5bn to shareholders “over the next three years”, funded mostly by a sale of Powder Metallurgy.

Under the Melrose offer, GKN shareholders would receive an immediate £1.4bn in cash, and further cash payments in the medium term once Powder Metallurgy was improved and sold and as the full value of Nortek was realised.

Melrose added that its offer had already added approximately £1.2bn of value to GKN shareholders, claiming that without the offer the GKN share price would “likely be considerably lower”.

“GKN is on record at the beginning of January stating that they had been working on Project Boost for a number of months,” said Melrose chairman Christopher Miller.

“In our view this is too little, too late, in most cases a 'me too' espousal of our proposal and a promise of a hasty sale of a division which we believe is capable of significant further value-add under Melrose.”

Miller said Wednesday’s announcement was effectively a “jam tomorrow” and “trust me” plea from a management team “with a limited track record” of delivering value for shareholders.

“We agree that a substantial culture change is required to unlock GKN's potential but we believe that only Melrose can provide it.

“Melrose is offering GKN shareholders £1.4bn in cash up-front and a majority stake in a UK manufacturing powerhouse worth £10bn today, driven by a management team that has an unrivalled track record of over delivering on its promises.

“We invite GKN shareholders to join us.”