UK engineer GKN PLC (LON:GKN) has hit back at claims that its plan to sell its automotive arm to Dana Incorporated (NYSE:DAN) would leave shareholders nursing hefty pension liabilities.
Turnaround specialist Melrose Industries PLC (LON:MRO), which is attempting a £8.1bn hostile takeover of GKN, said on Monday that unless shareholders accept its offer they will be left with an aerospace business “overburdened” with up to £3bn of pension liabilities.
Melrose said it would invest £1bn in GKN's pension fund, compared to the £528mln deficit reduction package that the engineer agreed with trustees as part of the proposed merger of its automotive division, Driveline, with Dana.
READ: Melrose and Dana sweeten deals with GKN as takeover battle intensifies
In a statement on Tuesday, GKN slammed Melrose’s remarks as “misleading”.
"A month ago, Melrose appeared to suggest that its plan to pay £150mln into the pension scheme was sufficient,” said group finance director Jos Sclater.
“Now it appears to have unveiled a £1bn plan that would achieve less than GKN's own agreement with the trustees, at a greater cash cost which would erode shareholder value. I think our shareholders deserve better."
GKN clarifies plans for pension schemes
GKN said it will transfer £1.38bn of gross pension and post-retirement medical scheme liabilities and £818mln of pre-tax deficit under its proposed deal with Dana. Dana has agreed to contribute £124mln to cut the pension deficit.
It also vowed to eliminate its pension deficit, remove the need for expected future cash contributions into its UK schemes, cut back liabilities to under £2bn and reduce the volatility of remaining schemes.
"GKN has a clear and comprehensive plan to reduce its pension liabilities and eliminate the deficit in its UK pension schemes,” said Sclater.
“We have a binding agreement with the trustees which works for all stakeholders: the scheme members, the Trustees and the company and its shareholders.”
GKN’s US$6.1bn deal to merge Driveline will leave the company as a stand-alone aerospace business.
The group has until 1pm on Thursday to accept the third and final offer Melrose put forward last week.