GKN PLC Share News (GKN)

LONDON (Alliance News) - Melrose Industries PLC said Thursday it had agreed a deal with the pension scheme trustees of GKN PLC as it seeks to persuade GKN's investors to accept its hostile GBP8.4 billion bid for the FTSE 100-listed engineering firm, despite GKN continuing to oppose the deal.

GKN shareholders can elect to support Melrose's offer up until March 29.

Melrose has agreed to provide up to GBP1.0 billion in cash contributions in order to "prudently fund" the GKN schemes. This, it said, was "in line" with its original assumptions with regard to its GKN acquisitions.

As part of this, Melrose will pay an initial GBP150 million. Of this, GBP60 million will be paid to the 2016 pension scheme to "secure self-sufficiency" at a discount rate of Gilts plus 25 basis points.

Melrose also agreed to provide a "safer funding basis" for the 2012 pension scheme. With this, it targets full funding using a discount rate of Gilts plus 75 basis points. This it plans to achieve through the doubling of annual contributions to GBP60 million. It also agreed a formula for contributions in the event of disposals.

"The agreement with the GKN Pension Scheme Trustees is another concrete example of Melrose's exemplary track record with pension schemes and its desire to look after all stakeholders," Melrose Chairman Christopher Miller said.

"This agreement would significantly improve the position of the members of GKN's pension schemes and is in line with our original plans for the business," Miller added. "We are delighted to secure another important step in our offer to buy GKN."

Melrose - a FTSE 250-listed industrial turnaround firm - raised its offer for GKN earlier in March to GBP8.4 billion from the initial GBP7.1 billion announced in January. Within the new offer, Melrose took aim at what it saw as inadequacies in GKN's pension proposals after its merger deal with Dana Inc regarding its automotive unit.

Melrose's increased bid followed the announcement earlier in the month that GKN had reached an agreement to combine its automotive Driveline business with New York-listed engineering firm Dana Inc in a USD6.1 billion cash-and-shares deal.

Pensions have become a prominent battle ground in the war of words between GKN and Melrose. On Wednesday, GKN rejected Melrose's claims regarding its pensions funding. Rather than "substantially" reducing cash contribution to its pension schemes as Melrose suggests, GKN said it raised cash contribution from GBP100 million to GBP121 million and then GBP344 million in 2015, 2016 and 2017, respectively.

Melrose's statement that the Dana deal would see just GBP528 million contributed as a deficit reduction package was refuted as well. GKN argued it would contribute GBP749 million of which GBP625 million would come from GKN and GBP124 million from Dana.

In a separate announcement Thursday, GKN reiterated its belief that Melrose's bid was "entirely opportunistic" and "fundamentally undervalues" the firm.

GKN Chairman Mike Turner reiterated his belief that GKN's own deal with Dana was an "attractive combination". Turner added GKN's further sales of non-core assets to focus on its Aerospace business rendered Melrose's offer "wholly inadequate in comparison to the value creation potential inherent in this strategy."

Turning to concerns raised by GKN's largest customer - Airbus SE - Turner urged investors to reject Melrose's offer.

"Airbus has publicly stated its significant concerns about GKN being owned by a company with a short term investment horizon," Turner explained. "We believe that Airbus is right to be concerned about such an approach and the comments from Airbus reinforce our firmly held belief that Melrose is not an appropriate owner of GKN. Indeed, throughout this process, Melrose has shown itself to be an unsuitable steward of your company with no long term plan."

Shares in Melrose were 0.9% lower at 221.40 pence on Thursday, GKN 1.3% lower at 423.30 pence.