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.
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 --