Melrose hit by reports of disappointing bids for GKN unit
Shares in Melrose Industries fell on Monday after the group received disappointing levels of interest from potential buyers of GKN's powder metallurgy business.
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Melrose Industries
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The FTSE 100 group, which took control of GKN on 19 April after a protracted £8bn hostile takeover, was reported by Sky News to be pondering whether to pull the powder metallurgy business after initial bids last week valued the unit at little more than £1.6bn.
A source told Sky that Melrose still intended to sell the business, but not necessarily via this particular auction, which had attracted indicative offers from private equity firms including Apollo and PAI Partners.
Analysts at RBC Capital Markets said on Monday morning that Melrose management have traditionally been strict on asset valuation and "are unlikely to sell if current slightly more uncertain market conditions have weighed on bids for Powder Met".
However, while a valuation of £2bn for the unit was cited in the Sky story, RBC suggested a bid of at least £1.8bn would be "acceptable" to Melrose, which is around the sum of the business's parts.
If such a sum of the parts valuation was ascribed across the whole of Melrose, something RBC would see as "very harsh", that would still see give a valuation of 210p per share, which RBC noted was well above the current share price.