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March 14, 2018 02:00 AM

GKN rejects Melrose's takeover bid in wake of Dana merger

Chris Sweeney
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    REDDITCH, England—GKN P.L.C. continues to fend off a takeover bid from Melrose Industries P.L.C., even as it is in the process of combining its driveline business with Dana Inc.

    On March 12—three days after GKN and Dana reached a $6.1 billion agreement to form Dana P.L.C., what projects to be the world's largest supplier of driveline components with combined sales of $13.4 billion—Melrose Industries sent GKN a "revised and final offer" to acquire all of GKN for about $1.13 per share, or $11.2 billion based on the value of GKN's stock at the time.

    GKN operates two divisions—driveline and aerospace, the latter not affected by the Dana merger. GKN unanimously rejected Melrose's offer in a statement posted to its website on March 12.

    Since the offer was declared "final," it cannot be increased under British takeover rules.

    "The board believes that Melrose's Revised Offer continues to fundamentally undervalue GKN and has no hesitation in unanimously rejecting it," GKN Chairman Mike Turner said in a statement.

    "Melrose is not the right owner of GKN. Its management lacks relevant experience and its short-term business model is inappropriate for GKN's customers and its investors. Winning new business in our markets would be more difficult if customers were uncertain as to the identity of their future long-term partners."

    GKN said the revised offer continues to undervalue GKN because it does not reflect the value of its aerospace business, the benefits of combining GKN Driveline and Dana Inc., the return of up to about $3.5 billion in cash to GKN's shareholders during the next three years—of which GKN said a significant part is expected to come within the next 12-18 months—and does not reflect an illustrative trading "sum-of-the-parts" value of GKN.

    According to GKN, Melrose announced its offer for all of GKN on Feb. 1 that was also rejected by the GKN board.

    "GKN's discussions with Dana pre-date Melrose's opportunistic approach," GKN said. "Both parties are fully committed to completing the Proposed Transaction by the fourth quarter of 2018. The combination of the two businesses is inherently complementary and neither party envisages any significant antitrust issues."

    GKN added that the proposed combination of GKN Driveline and Dana is a natural acceleration of its strategy to separate its driveline and aerospace businesses. The Dana merger is projected to be approved in the second half of 2018 and would result in GKN's shareholders will own 47.25 percent of the new company with Dana shareholders owning the remaining 52.75 percent.

    "It brings together two highly complementary businesses, with significant synergies, and creates a global leader in vehicle drive systems across all three mobility markets—light vehicle, commercial vehicle and off-highway," GKN said of the Dana deal.

    Dana CEO James Kamsickas and Chief Financial Officer Jonathan Collins will remain in their roles as leaders of the combined company. Keith Wandell, currently non-executive chairman of Dana, will remain in the same role as well. The board will expand to include two representatives designated by GKN.

    The new company will consist of a very balanced product mix, with 45 percent of its sales coming from the light vehicle/CUV segment, 30 percent in SUV/truck, 15 percent off-highway and 10 percent commercial vehicle.

    It will serve all the major global OEMs. Ford, Fiat Chrysler Automobiles, Renault/Nissan, General Motors, Volkswagen, Toyota and Tata combine to account for 55 percent of sales, with Ford leading the way at 16 percent. All other OEMs—including Volvo, Deere, Paccar, BMW and Daimler—account for the remainder.

    "I'm not sure that I've personally witnessed a more complementary transaction," Kamsickas, said on a March 9 call discussing the deal. "If you want to look at it from a product, market, geography or a company culture standpoint, the list goes on that's for sure."

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