Published: Sat, January 13, 2018
Worldwide | By Isabel Fisher

EXTRA: GKN Rejects Melrose Proposal, Launches Improvement Programme

EXTRA: GKN Rejects Melrose Proposal, Launches Improvement Programme

Shares in Melrose Industries were 10.71% higher at 238.1p in early trade on the London Stock Exchange.

After receiving a "preliminary and unsolicited proposal from Melrose" on January 8 worth 405p a share, GKN rejected the "opportunistic" approach. Smiths Group (LON:SMIN) is also one of today's most notable FTSE 100 risers after updating investors on the impact from the tax reform on the other side of the Atlantic.

GKN, which in October past year said business performance was not meeting management expectations, has now made a decision to separate its aerospace and automotive division and launched a a so-called "Project Boost" performance improvement programmeme.

In accordance with the UK's takeover rules, Melrose has until 5.00pm on 9 February 2018 to counter with a new offer for GKN.

"In addition, the proposal would materially dilute the exposure of GKN shareholders to the meaningful upside opportunities that the board believes are present within the company", GKN said. GKN acknowledges that profit margins and cash generation have been "below expectations", despite a rise in sales. The Board will give further details on how it intends to do this in due course.

GKN, which used to be known as Guest, Keen and Nettlefolds and traces its history back to 1759, has struggled in recent years and its profit warning came after a downturn in its United States aerospace business.

GKN also announced on Friday that it had appointed Anne Stevens (left) as chief executive with immediate effect.

In November, the company announced that its CEO designate Kevin Cummings was leaving the company with immediate effect following a profit warning brought about by difficulties on USA aerospace operations.

On Friday, it said a new two-year strategy called Project Boost would significantly increase cash flow by cutting costs and expenditure along with tighter pricing control.

"Historically, the pension deficit has held the group together, but with the sprawling footprint likely to have contributed to recent profit warnings, the reasons for divorce now seem to outweigh the costs of splitting", he said.

Following fourth-quarter trading "in line with expectations", GKN foresees a full-year pre-tax profit "slightly ahead" of the £678 million recorded in 2016.

"The money to be made from a split is likely to have been what drew turnaround specialist Melrose to the table in the first place". This is before accounting for the previously announced substantial write-offs in the North American Aerospace business.

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