* GKN investors must choose between Melrose bid, Dana plan
* Dana deal would leave GKN less diversified - Moody's
* New GKN-Melrose spat breaks out over pension plans(Updates with pensions dispute, Moody's report)
By Ben Martin
LONDON, March 13 (Reuters) - The chief executive of U.S.firm Dana Incorporated is in London meeting top GKNshareholders in a drive to persuade the Britishengineer's investors to back a deal with Dana and reject ahostile bid by Melrose Industries.
GKN agreed a $6.1 billion deal on Friday to merge itsautomotive division with Dana, an Ohio-based maker of axles anddriveshafts, hoping to fend off an unwanted takeover approach byMelrose, a UK-based industrial turnaround specialist.
Melrose responded by raising its cash-and-shares bid for allof GKN on Monday. The offer, which at the time valued the FTSE100 engineer at 8.1 billion pounds ($11.3 billion), was declared"final", meaning it cannot be increased under Britain's takeoverrules.
James Kamsickas, the Dana chief executive, is now in Britainto discuss the merits of the automotive deal with GKN's majorshareholders, two sources familiar with the matter told Reuters.
The Dana CEO is expected to spend most of the week inBritain, one of the sources added.
It comes as the battle for the future of GKN, a mainstay ofBritain's engineering sector, reaches its final stages.
GKN shareholders have two options. They can choose Melrose'sbid of 81 pence in cash for each GKN share plus 1.69 new Melroseshares, a deal that will hand them a 60 percent stake in theLondon-listed turnaround specialist.
GKN investors have until March 29 to accept Melrose's offer.
Alternatively, they can back GKN's plan, which would givethem a 47.25 percent stake in New York-listed Dana.
GKN, led by new CEO Anne Stevens, has also pledged to selloff its powder metallurgy business, which along with the Danadeal would leave the engineering group focused on the aerospacesector, supplying parts for aircraft including the EurofighterTyphoon. It would then return as much as 2.5 billion pounds toits shareholders over three years.
Such a plan "would delever GKN, but weaken its businessprofile," analysts at Moody’s Investor Service warned in a March12 report.
They argued that a deal with Dana would leave GKN as a"substantially smaller and less diversified" business.
Melrose has been pursuing GKN since January, when the fightbetween the two companies quickly descended into a war of words.
They clashed again on Tuesday over the future of GKN'sretirement schemes following an intervention by the trustees ofthe engineer's pension plans.
The trustees said on Monday evening that they had held anumber of discussions with Melrose about its takeover bid buthad yet to receive proposals that addressed their "keyconcerns".
GKN said the trustees' statement showed Melrose was "notdemonstrating a responsible approach to the serious issue ofprotecting the long-term interests of GKN’s pensioners."
Melrose's Executive Chairman Christopher Miller retortedthat the turnaround specialist is "an exemplary custodian ofpension schemes".
"We are working towards an agreement on the GKN pensionschemes which will strengthen them and better protect GKN'spensioners," he said.($1 = 0.7181 pounds)(Reporting by Ben MartinEditing by Adrian Croft)
