GKN PLC (LON:GKN) shareholders looking for short-term face value should vote for the engineer’s plan to sell its automotive arm to Dana Inc (NYSE:DAN), analysts at Numis suggested.
Those taking a long-term view, on the other hand, should opt for the £8.1bn takeover proposal by Melrose Industries PLC (LON:MRO), the analysts added.
Investors have until March 29 to decide which deal they want to back.
Short-term vs long-term investment view
“The current management's plan involves the rapid deconstruction of GKN and value realisation to leave a focused aerospace business with the pension issues largely addressed,” Numis said in a note on Wednesday.
“Melrose offer is longer term, looking to maximise the potential of the portfolio prior to any value realisation.”
Numis raised its rating on GKN to ‘add’ from ‘hold’ and lifted its target price to 481p from 450p to reflect the “disposal premium” of the company’s US$6.1bn deal with Dana.
The broker said GKN’s plan is “comprehensive and significantly reduces its pension risk”, though Dana will take on large debt in the short term.
Melrose proposal 'arguably more complex', says Numis
The Melrose option also involves significant levels of debt, Numis said, adding that it will take longer to deliver and is “arguably more complex” than deals the turnaround specialist has recently undertaken.
Numis noted that Melrose’s acquisition of British engineer FKI in 2008 was complex but was on a much smaller scale than the proposed hostile takeover of GKN.
The remarks from Numis come after GKN issued another warning to shareholders against voting in favour of Melrose’s “highly opportunistic offer”.
READ: GKN tells shareholders to vote against 'opportunistic' Melrose bid as deal deadline looms
The engineer said recent comments by Melrose, including claims that shareholders would end up with £3bn of pension liabilities under the Dana deal, were “misleading”.
GKN said its planned merger with Dana “brings together two highly complementary businesses creating a global leader in light vehicle drivetrain systems and one of the largest powertrain suppliers worldwide”.
GKN shares were little changed in late morning deals.