GKN PLC (LON:GKN) shareholders are potentially giving up about a 12% upside if they accept the £7bn takeover bid from Melrose Industries PLC (LON:MRO), Numis estimates.
Turnaround specialist Melrose is meeting with GKN shareholders on Monday to convince them of the merits of their bid, which GKN management rejected last week.
READ: Melrose to meet with GKN shareholders to pursue £7bn takeover
Numis lowered its rating on GKN to ‘hold’ from ‘buy’ and left its target price at 450p as awaits developments from the meeting.
“On the indicative terms, accepting an offer would, we estimate, translate to a 12.5% lower value longer term for GKN shareholders (sum-of-the-parts 546p against 624p) than self-help, the upside being dilution from existing Melrose equity,” it said.
“However, a proven management team suggests lower execution risk and Melrose has a strong track record on disposals and garnering such premium.”
The broker noted that Melrose's margin improvements have averaged 7% on four of its deals suggesting it “may well be eyeing greater upside than the 250 basis points target of the current GKN management team”.
READ: GKN shares plunge on profit warning prompted by legal claims and US aerospace difficulties
Deutsche Bank raised its target price on GKN to 440p from 395p and repeated a ‘buy’ rating on the stock.
“With GKN having been a potential acquisition target on Melrose’s radar for a number of years in our view, plus the scope for creating significant shareholder value from running the business more efficiently, we believe Melrose could return with an improved proposal,” it said.
“Also with GKN now in play, other potential acquirers may enter the process leading to competitive tension for the asset.”
Shares in GKN rose 3.6% to 425.10p in morning trading while Melrose climbed 0.7% to 229.20p.