Melrose Share News (MRO)

LONDON (Alliance News) - GKN PLC said Wednesday commitments provided to the UK government by Melrose Industries PLC with regards its hostile GBP8.4 billion bid for GKN "smacks of desperation" as it continues to press investors to reject its approach.

"This morning's blizzard of announcements by Melrose, drafted in increasingly hysterical language, smacks of desperation," GKN Chairman Mike Turner said. "Just as with its costly last minute agreement on pensions, it has now been forced into giving commitments on a five year hold period for GKN Aerospace to address its transient business model."

GKN argued that Melrose's "real commitment" to the UK economy was demonstrated in February "when Melrose announced it had entered into consultation with more than a third of the UK workforce at Brush which is expected to lead to a significant loss of jobs."

Earlier on Wednesday Melrose revealed the full details of commitments made to the UK takeover panel regarding its GKN offer as the takeover battle enters its final stages. Melrose needs to get majority shareholder approval for its offer by 1300 BST on Friday.

"Melrose fully stands behind its plan to work for the improvement of not only GKN, but the UK economy as well," Melrose said Wednesday.

"Melrose has ambitions for the future of GKN beyond the fire-sale being conducted by the current GKN board at a badly discounted price for Driveline that penalises shareholders, employees, pensioners and the UK alike," Melrose added. "Melrose has offered a legally binding commitment to the Secretary of State to stand behind its intention to hold the GKN Aerospace business as it delivers the improvement necessary to unlock its potential."

GKN countered that the commitments "have been extracted at the eleventh hour, giving investors limited opportunity to digest the ramifications."

The "rushed" nature of the commitments, GKN added, have also "significantly limited" Melrose's "strategic flexibility" regarding GKN Aerospace by committing to retain the business until April 2023.

"By significantly limiting its strategic flexibility," GKN added, "Melrose has implicitly reduced the value of GKN Aerospace. The board of GKN strongly believes that GKN Aerospace would be worth less in Melrose's hands than it is today."

GKN Chair Turner added: "Shareholders should be in no doubt that the last minute concessions in relation to GKN Aerospace have significantly limited Melrose's flexibility to develop the business and thereby adversely affect its value in the event of Melrose's ownership."

"The aerospace market is changing rapidly in the face of global trends and tier one aerospace suppliers like GKN have to deal with these challenges," Turner added. "The best way to do this is to have complete operational focus and strategic flexibility that comes with being a separately quoted, pure play aerospace business which is free of the constraints that Melrose are now accepting."

The new argument between Melrose and GKN followed the UK government on Tuesday seeking several commitments from Melrose as it evaluated whether its GKN bid gives rise to national security concerns.

UK Secretary of State for Business, Energy & Industrial Strategy Greg Clark in a letter dated Monday - but released Tuesday - sought binding commitments from Melrose if its bid for GKN was successful. These included over operating a UK headquartered and listed business, maintaining a UK workforce, continuing to pay UK taxes, continuing to invest in research and development programmes and making arrangements for current and future pensioners.

Clark said: "I am concerned that a short-term approach to ownership may not be compatible with maintaining the longer-term relationships which characterise the best interests of the defence field. In the light of this I would expect to see a commitment to continuity of ownership and strategic investment specific to the defence related business of GKN and to exclude the option of a short-term sale of this business without the consent of the government. I am aware that you are separately discussing with the Ministry of Defence the terms of an agreement that would satisfy any concerns that the Defence Secretary may have."

In response, Melrose said Tuesday that it has agreed with the UK takeover panel's legally binding undertakings in relation to maintaining Melrose's headquarters in the UK and a London stock listing for a period of five years. The company also gave commitments over research and development spending of GKN.

GKN late Tuesday hit back saying the need for the UK government to intervene and seek commitments from Melrose over its hostile bid is further evidence that Melrose is the wrong owner for this business and that shareholders would be taking a risk in accepting the offer.

Melrose has committed not to sell the GKN Aerospace business before April 1, 2023, but it has not made any commitment about the future of GKN Driveline, GKN said.

"In other words, the future of GKN Driveline becomes immediately uncertain under Melrose's ownership in contrast to its certain future under the Dana/GKN Driveline combination," GKN said. It added that Melrose's pension proposal would create a group with high leverage and leave gross pension liabilities in excess of GBP4.3 billion, which would be borne by shareholders.

"The fact that Melrose appears to have been forced into these undertakings shows once again that it would be an unsuitable owner of GKN," GKN Chief Executive Anne Stevens said.

Shares in Melrose were trading 0.6% lower at 222.30 pence. GKN shares were trading 1.2% lower at 425.30p.