Melrose Industries PLC (LON:MRO) has warned GKN PLC (LON:GKN) investors the engineer’s shares could drop if they vote against its hostile takeover bid.
Shareholders have until Thursday lunchtime to vote on Melrose’s £8bn offer for GKN.
Ahead of the deadline, Melrose said GKN’s valuation has risen by £1.8bn since it first approached the company in January.
“Where would GKN's share price have been without Melrose's approach and where would it fall to if Melrose's offer did not proceed?,” it asked in a statement on Wednesday.
Melrose argued that its offer of 465p per share represents a “significant premium” of 43% to GKN’s share price before its first approach in January.
GKN believes its sum-of-the-parts value is at least 500p per share.
Melrose said its share price would need to increase by just 10% to match the “optimistic estimate” GKN’s board provided on the company’s value.
"Since we made our approach, GKN has repeatedly changed its strategy and contradicted itself,” said Melrose chairman Christopher Miller.
"We believe this lack of candour and strategic vision indicates more than simply a management team in denial about its own abilities. We believe shareholders need to question the validity of the GKN board's promises to increase shareholder value and meet its targets.”
Melrose outlines "legally binding" commitment to government
In an earlier statement on Wednesday, Melrose said it would not embark on a reorganisation of GKN as it sought to alleviate concerns raised by business secretary Greg Clark over the deal.
Clark had written to Melrose to demand a long-term investment approach to the turnaround specialist's £8.1bn takeover plan, raising concerns about national security due to GKN’s work for the Ministry of Defence.
Melrose’s business model is to buy industrial companies, improve their margins and sell them for a profit. Clark said Melrose's model has been "built on short-term ownership" while GKN needs stable ownership and financing that are critical in the defence sector.
"I recognise that any listed company may be subject to future takeover and so cannot guarantee its ownership indefinitely,” Clark wrote.
"However, I am concerned that a short-term approach to ownership may not be compatible with maintaining the longer-term relationships which characterise the best interests of the defence field.”
READ: Melrose tries to soothe business secretary's concerns on hostile takeover bid for GKN
In response, Melrose has proposed a five-year “legally binding” commitment to keep its headquarters and listing in the UK, ensure a majority of its directors are resident in the UK and maintain GKN’s research and development spending at 2.2% of sales.
The company said it will also ensure both of GKN’s automotive and aerospace divisions can continue to use its branding for five years. It also vowed to keep the aerospace division for at least five years and increase spending on apprentices.
“As a UK listed company with an exceptional record of investing in and improving underperforming companies like GKN for the benefit of all its stakeholders, Melrose has stated in its letter that it will address any concerns regarding national security direct with the Ministry of Defence,” it said.
Melrose proposals leave considerable uncertainty, says GKN
GKN on Tuesday said it believes the fact that the business secretary had to step in to raise issues, was “further evidence that Melrose is the wrong owner for this business and that shareholders would be taking a risk in accepting this offer”.
"Melrose is asking shareholders to consider a set of last-minute undertakings which leave considerable uncertainty and do not adequately address the need for long-term shareholder value creation,” GKN’s chief executive Anne Stevens said.
Melrose said GKN’s statement “offered nothing but further repetition of its incoherent defence strategy”.
GKN’s plan is to sell its automotive business, Driveline, to Dana Inc (NYSE:DAN) and offload non-core units to become a standalone aerospace company.