LONDON (Reuters) – Melrose Industries (MRON.L) increased its hostile offer for GKN (GKN.L) by around 10 percent to 8.1 billion pounds ($11.2 billion), trying to win over investors after the British engineering firm struck a rival deal of its own last week.
GKN said in response on Monday that it was evaluating the new offer which increased the equity element of the bid and which Melrose said was a final offer.
Melrose, a UK-based turnaround specialist, said that GKN investors would receive 81 pence in cash for each GKN share plus 1.69 new Melrose shares under its offer. The previous offer made in January was 1.49 new Melrose shares plus 81 pence cash.
GKN, which makes parts for car companies and aircraft manufacturers, had dismissed the initial offer as derisory.
As part of its defense, GKN struck a $6.1 billion deal on Friday to merge its automotive business with U.S. company Dana Incorporated (DAN.N), offering GKN shareholders a 47.25 percent stake in the enlarged, U.S.-listed group.
A hedge fund investor, who has built a stake in GKN since the engineering company disclosed Melrose’s bid in January, said he expected the new offer was high enough for Melrose to win GKN.
“It was a little bit better than we thought,” he told Reuters of the new offer. “It’s an interesting strategy to go final before they have a recommendation but I guess they felt like they’ve got enough shareholders on board anyway.”
GKN shares edged up 0.4 percent to trade at 436.7 pence, compared to the 467 pence per share initial value of Melrose’s final offer.
Melrose shares lost 3.4 percent to 217 pence, dragging down the value of the bid to 447 pence.
GKN says it believes it will be worth 503 pence given its plans for the improving the company and selling off parts.
(Graphic: GKN thrives under hostile conditions – reut.rs/2GhNlDp)
The board of GKN has been battling to convince shareholders that it can create more value for them with its own plan for the company since Melrose first approached it in January.
Melrose said on Monday that the deal with Dana was “ill-thought-through” and would face regulatory hurdles.
Publishing its latest defense plan on Monday, GKN said that shareholders would be invested in a more profitable GKN Aerospace, plus have holdings in the merged GKN-Dana company.
They would also be due to receive part of a 2.5 billion pound cash return over the next three years from the Dana deal and the proposed sale of its powder metallurgy business.
The company, which can trace its roots back to 1759, is attractive to buyers because of its involvement with growing aircraft programs such as the A350 and the A320, and in cars, where it has been growing market share and supplies manufacturers including Fiat Chrysler and VW Group.
But it was left vulnerable to bid approaches after two profit warnings late last year, caused by problems at its U.S. aerospace business.
The potential takeover of GKN has prompted worries from British politicians about British jobs being lost and the country’s engineering know-how ending up in foreign hands.
GKN employs around 6,000 people in Britain — about 10 percent of its workforce.
Lawmakers were concerned that Melrose could break up the engineer and sell parts to foreign buyers, potentially compromising British and U.S. national security because of GKN’s work on defense programs — the company makes components for the Eurofighter Typhoon combat jet.
Seeking to allay those fears, Melrose told lawmakers earlier in March that it would consider making binding commitments about the future of GKN if its bid succeeds.
“We are more convinced than ever that the Melrose team, who have decades of experience in successfully transforming businesses, are the only real choice of team to re-energise and re-focus GKN to unlock its full potential,” Melrose said in its statement.
The deadline for GKN shareholders to accept its offer is March 29, it said.
($1 = 0.7213 pounds)
Additional reporting by Ben Martin; Editing by Kate Holton and Keith Weir