LONDON, March 2 (Reuters) - British engineering company GKNis in talks with Dana Incorporated over its autounit, opening up a new front in its battle to fight off ahostile 7 billion pound ($9.6 billion) bid from MelroseIndustries.
GKN said on Friday that it was talking to U.S.-based carparts maker Dana Incorporated about a combination of GKNDriveline with Dana in a deal to be effected mainly in equity.
Seeking to fight off turnaround specialist Melrose's cashand shares approach which it argues undervalues it, GKN alreadyhas a plan to demerge its main aerospace and automotivebusinesses by the middle of next year.
The talks with Dana came about after it received a number ofapproaches for its businesses, GKN said.
The potential deal with Dana could provide greater value toshareholders than its demerger plan, GKN said, and it wouldtherefore explore it as an option.
The involvement of U.S. buyer Dana, an Ohio-headquarteredmaker of axles and driveshafts, could prompt scrutiny fromBritish lawmakers as some politicians have already expressedworries about GKN ending up in foreign hands.
Britain's defence secretary has said he has "seriousconcerns" about a change of ownership. GKN's defence unit makescomponents for the Eurofighter Typhoon.
GKN cautioned that the discussions may not lead to anytransactions and advised shareholders not to take any action inrelation to the Melrose offer.
Melrose shareholders are due to vote at a March 8 meeting onthe potential acquisition and the turnaround specialist's planto issue shares to help to finance the GKN bid.
GKN also on Friday issued a second statement to say it wasin talks with its trustees over what a possible demerger of itsbusiness would mean for its pension schemes. It had previouslywarned that Melrose's bid could hit its pension.
It said it would make a 160 million pound contribution tothe scheme upon demerger.($1 = 0.7265 pounds)(Reporting by Sarah YoungEditing by Kate Holton and Keith Weir)