GKN PLC (LON:GKN) has turned down a second takeover offer from Melrose Industries PLC (LON:MRO), saying the deal undervalues the business.
Melrose, a UK investment firm that specialises in turning around industrial businesses, on Wednesday confirmed that it had taken its bid to buy the UK engineer hostile with a £7.4bn offer.
The offer values GKN at 430.1p a share in cash and stock, compared to the initial proposal of 405p. However, the increased offer is based on a rise in Melrose's own share price, which closed at 234.3p on Tuesday.
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GKN tells shareholders to vote against hostile bid
Responding to the new proposal, GKN said the terms were "effectively unchanged" from the initial approach, which it rejected because it "fundamentally undervalued" the business.
The company recommended its shareholders vote against the proposal as it thinks it would "materially dilute" their exposure to the" meaningful upside opportunities that the board believes are present within the group".
GKN’s management turned down the first offer on Friday as it announced a plan to split its aerospace and automotive businesses and appointed Anne Stevens as its new chief executive to lead its turnaround.
“We believe GKN’s current owners should retain all the benefits of the clear upside potential in GKN, rather than handing almost half of this upside to Melrose and its shareholders," said Stevens said in Wednesday's statement.
"We have already stated that the terms of Melrose’s offer fundamentally undervalue the company and we are actively engaging with shareholders to explain how our transformation plan will provide value.”
READ: Melrose to meet with GKN shareholders to pursue £7bn takeover
Melrose sees value in merger to create £11bn company
Melrose chief executive Simon Peckham said in a statement: “The real value uplift will come from merging the interests of the two sets of shareholders and creating a business valued at approximately £11bn today.”
Peckham said Melrose is continuing to hold discussions with shareholders about the potential for the enlarged business.
Melrose said the new bid represents a 29% premium to GKN's closing price of 332.7p on Thursday.
GKN's shares have recovered to around 443p today since rejecting the first offer.