GKN shareholders choose Melrose over Dana

MAUMEE, Ohio—GKN P.L.C.'s shareholders have accepted a rival takeover proposal from Melrose Industries P.L.C. rather than a proposal to merge its Driveline division with Dana Inc.

On March 29, shareholders for GKN accepted Melrose's $11.2 billion offer to take over all of GKN.

GKN confirmed in an email that shareholders voted 52.43 percent in favor of the Melrose bid as of 1 p.m., England time, however it added that it believes the offer "fundamentally undervalues GKN."

"The board of GKN now intends to work with Melrose to ensure the success of the enlarged company, in the interests of all stakeholders, including employees, customers and shareholders," GKN said. A spokesman added that the company had no further comment.

Dana said in a statement that the vote means its proposed merger with GKN Driveline is unlikely to proceed.

"We are, of course, disappointed by today's outcome and continue to believe Dana would be the best owner and operator of GKN Driveline," James Kamsickas, Dana president and CEO, said in a statement. "This has always been an opportunity, not a required or critical asset. Dana is a strong, thriving company, and we will continue our focus on the execution of our enterprise strategy, delivering for our customers and remaining responsible stewards of our shareholders capital."

The move means Melrose will assume control of both the Driveline and Aerospace divisions. Melrose could not be reached for comment, but GKN added in its statement that if the level of acceptance reaches 75 percent, Melrose intends to delist the company.

Dana and GKN had reached an agreement March 8 to form Dana P.L.C.—a combination of Dana Inc. and GKN's Driveline division, of which Dana shareholders would have owned own 52.75 percent and GKN's shareholders the remaining 47.25 percent. The deal would have created the world's largest supplier of driveline components, according to the firms.

Bidding war

Both Dana and Melrose had upped the ante for GKN's shareholders in the weeks leading up to the vote. Most recently, Dana increased the cash element of its offer by $140 million, boosting it to $1.77 billion total and raising the overall value of the offer to more than $6.2 billion. Dana also said it would double the size of its share repurchase to $200 million.

GKN subsequently said that about $900 million in cash would be paid out to shareholders as soon as possible should they accept the Dana/GKN Driveline proposal.

In addition to the $1.77 billion cash consideration to GKN, Dana would have taken on $1 billion in net pension liabilities and planned to issue about 133 million new shares of the combined company worth about $3.5 billion.

Dana also planned for a secondary listing of Dana P.L.C. on the London Stock Exchange, which according to the firm would have allowed for more GKN shareholders to benefit from the Dana-GKN Driveline combination. It added that it planned to continue to pay a quarterly dividend of 10 cents per share to its expanded shareholder group.

None of these moves were enough to sway GKN shareholders, who went with Melrose's "revised and final offer" issued March 12 to acquire all of GKN for about $11.2 billion. The GKN board had "unanimously rejected" the offer in a March 12 statement.

Even though the offer was declared "final," meaning it could not be increased under British takeover rules, Melrose managed to sweeten the pot by offering to contribute $1.4 billion toward GKN's pension fund.

Moving forward

The battle for GKN did not stop Dana from increasing its 2018 full-year financial targets—upping its sales projections by $300 million to $8.05 billion. It did not provide a guidance for its net income.

Dana also secured two new contracts—one to supply driveline components for the Chevrolet Silverado Class 4, 5 and 6 chassis cab trucks; and the other to supply axles for the next-generation Jaguar and Land Rover programs.

The Jaguar/Land Rover contract is worth more than $424 million, with Dana investing about $30 million to produce the axles at its facility in Birmingham, England.

Financial details of its contract with Chevrolet were not disclosed, but Dana said the conventional-cab trucks will be available in both two-wheel-drive and four-wheel-drive configurations and will feature Spicer S-Series drive axles, Spicer D-Series steer axles, Spicer front drive steer axles and Spicer Life Series driveshafts.

And on March 28, Dana received multiple supplier excellence awards. It won Toyota Motor North America Inc.'s Superior Award for achievement in value analysis and was honored by Toyota South Africa for Best Localization and value analysis.