Melrose Industries PLC (LON:MRO) told GKN PLC (LON:GKN) shareholders on Monday they will be left with an aerospace business “overburdened” with pension liabilities unless they back the turnaround specialist’s takeover of the engineer.
Last week Melrose put forward its third and final offer for GKN, which valued the company at £8.1bn. But GKN has advised shareholders to vote against the deal, saying it continues to “fundamentally undervalue” the firm.
READ: GKN reviews third takeover bid from Melrose Industries
Now Melrose is offering to invest £1bn in GKN's pension fund as it battles to secure the takeover deal ahead of Thursday's acceptance deadline. It also lowered the acceptance condition for its offer to 50% percent plus one share from 90%.
Melrose said the pension offer represents almost twice the amount of the £528mln deficit reduction package that GKN agreed with trustees as part of a proposed sale of its automotive division to Dana Incorporated (NYSE:DAN).
GKN plans to spin off the automotive arm, Driveline, and merge it with Dana, leaving the engineer with its aerospace arm.
GKN break-up plan will add 'significant risks', says Melrose
Melrose said the proposed US$6.1bn deal with Dana values Driveline at about £800mln less than what GKN assigned to the business on February 15.
"GKN's series of hastily-assembled and ill-considered proposals destroy potential value and add significant risk, not just for shareholders but in the underlying businesses themselves,” said Melrose chairman Christopher Miller.
“Unless they accept our offer, GKN shareholders will end up with shares in an aerospace business overburdened with up to £3bn of pension liabilities upon the planned disposals, and a minority shareholding in a Dana-managed Driveline business without a UK primary listing, which many won't be able to hold.”
GKN Driveline-Dana to be listed in London
GKN said in a statement on Monday that the combined company would be listed on both the New York Stock Exchange and the London Stock Exchange. Dana is seeking a secondary listing in London.
The US firm also said it would give GKN investors a slice of its dividend. Its current quarterly dividend of $0.10 per share will be paid to the enlarged shareholder base.
GKN said the proposed merger would create a global leader in vehicle drive systems and electric propulsion that is expected to deliver US$235mln (£170mln) in annualised cost synergies by the end of the third year after completion.
Chief executive Anne Stevens said the “complementary nature of the two businesses and our shared commitment to R&D and long term investment creates a fantastic opportunity to build a world leading company and create meaningful shareholder value”.
"The listing on the London Stock Exchange will make it possible for more of our shareholders to participate in the expected value creation opportunity from the combined Dana and GKN Driveline business,” she said.
Acceptance deadline looms
Under Melrose’s proposal, GKN shareholders will receive 81p in cash and 1.69 new Melrose shares for each GKN share. GKN shareholders would hold a 60% stake in the combined business.
The final offer values each GKN Share at 466p each, based on Melrose's closing price of 224.2p on March 16.
"By accepting the Melrose Offer, GKN Shareholders will keep the potential value of all the GKN assets as majority owners of a much larger business and a management team with a clearly superior track record," said Miller.
GKN has until 1pm on Thursday to accept the Melrose offer.