Sign up Australia
Proactive Investors - Run By Investors For Investors

GKN plans to return £2.5bn to shareholders in three years as it continues takeover fight

Last month, the FTSE 100-listed company rejected a £7.4bn bid from Melrose Industries, saying it “fundamentally undervalued” the firm
GKN plans to return £2.5bn to shareholders in three years as it continues takeover fight
GKN's chief executive Anne Stevens said that company has strong market positions.

GKN PLC (LON:GKN) plans to return £2.5bn in cash to shareholders over the next three years, after a strategic and operational review of its business in 2017 as the engineering giant continues the fight against a hostile takeover approach.

Last month, the FTSE 100-listed company rejected a £7.4bn bid from Melrose Industries PLC (LON:MRO), saying it “fundamentally undervalued” the firm. On January 12, Melrose made a 405p per share offer for GKN, comprising 80% in new Melrose shares and 20% in cash.

READ: GKN takes another swipe at Melrose as it warns takeover would weaken pension scheme

GKN said a "significant" part of this will come from divestments over the first 12 to 18 months of the plan, including a sale of its Powder Metallurgy division.

The firm’s new strategy, called “Project Boost”, is expected to deliver a recurring annual cash benefit of £340mln from the end of 2020.

The group also said its dividend policy until 2020 will aim to deliver an average payout of 50% of free cash flow.

Strong market positions

Anne Stevens, GKN’s recently appointed chief executive, said: “We have strong market positions and have delivered good growth, with management revenues last year of over £10bn. But too often we pursued growth at the expense of returns, this will no longer be the case.”

In afternoon trading, GKN’s shares were up 0.4% at 399.4p, while Melrose shares were ahead 1.8% at 215.9p.

David Madden, market analyst at CMC Markets UK, called GKN’s move “a sweetener” as the company has been pursued by Melrose, a company specialising in underperforming manufacturing companies, turning them around and selling them.

In a separate statement, Christopher Miller, chairman of Melrose commented: "GKN is on record at the beginning of January stating that they had been working on Project Boost for a number of months. In our view this is too little, too late, in most cases a 'me too' espousal of our proposal and a promise of a hasty sale of a division which we believe is capable of significant further value-add under Melrose.”

He added: “Today's document is effectively a 'jam tomorrow' and 'trust me' plea from a management team with a limited track record of delivering value for shareholders. We agree that a substantial culture change is required to unlock GKN's potential but we believe that only Melrose can provide it.”

 -- Adds Melrose statement, updates share prices --

View full GKN profile View Profile

GKN Timeline

No investment advice

The information on this Site is of a general nature only. It does not take your specific needs or circumstances into consideration, so you should look at your own financial position, objectives and requirements and seek financial advice before making any financial decisions. You acknowledge and understand that neither the Company, its related bodies corporate, the information providers or their affiliates will advise you personally about the nature, potential value or suitability of any particular security, portfolio of securities, transaction, investment strategy, or other matter. You should read our FSG and any other relevant disclosure documents and if necessary seek persona advice prior to making any investment decision.

You understand and agree that no Content (as defined below) published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable or advisable for any specific person.

You understand that in certain circumstances the Company, its related bodies corporate, the information providers or their affiliates may have received, or be entitled to receive, financial or other consideration in connection with promoting, and providing information about, certain entities on the Site and in communications otherwise provided to you.

You understand that price and other data is supplied by sources believed to be reliable, that the calculations herein are made using such data, and that neither such data nor such calculations are guaranteed by these sources, the Company, the information providers or any other person or entity, and may not be complete or accurate. From time to time, reference may be made in our marketing materials to prior articles and opinions we have published. These references may be selective, may reference only a portion of an article or recommendation, and are likely not to be current. As markets change continuously, previously published information and data may not be current and should not be relied upon.

Before you act on any general advice we provide, please consider whether it is appropriate for your personal circumstances.

© Proactive Investors 2018

Proactive Investors Australia PTY LTD ACN:132787654 ABN:19132787654.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use