By Ben Martin, Carolyn Cohn and Simon Jessop
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 a deal for GKN.
But PIRC, which advises institutional investors, has warnedMelrose shareholders in a Feb. 27 report that "various issuessurrounding" its bid mean they should oppose the proposedtakeover at the forthcoming vote.
The board of GKN, a mainstay of the British engineeringsector and manufacturer of parts for the Eurofighter Typhoon andBlack Hawk helicopters among others, spurned Melrose'scash-and-paper bid last month, prompting the suitor to turnhostile and take its offer directly to GKN investors.
The battle between GKN and Melrose has quickly escalatedinto a war of words and has also prompted some lawmakers toraise national security concerns.
Melrose typically breaks up companies once it has improvedtheir performance and some British lawmakers are worried thatparts of GKN involved in defence programmes could be sold on toa foreign buyer.
PIRC has highlighted to investors that Melrose's decision togo hostile means that it "has not benefited from theco-operation of the GKN board".
The adviser also said that "significant political and otherconsiderations, including security concerns" have been raisedand that Melrose has reported annual losses two years running.
However, PIRC's opposition conflicts with a recommendationmade by Institutional Shareholder Services (ISS), anotherinfluential investor adviser.
"Given the sensible strategic rationale, (Melrose's)turnaround track record and reasonable valuation, approval ofthe acquisition is warranted," ISS said in a note circulated toclients last week.
A Melrose spokeswoman said: "Melrose has always been highlyfocused on engaging with its shareholders to secure theirongoing support, including in relation to its offer for GKN."(
(Reporting by Ben Martin, Carolyn Cohn and Simon JessopEditing by David Goodman)