Melrose Industries PLC (LSE:MRO, OTC:MLSPF) shares fell again as the financial engineer announced plans to spin out a big chunk of the GKN business it bought four years ago in a bitterly fought £8bn takeover scrap.
Together, GKN Automotive and GKN Powder Metallurgy will be demerged into a new business that will have its own separate stock market listing alongside Melrose, which will retain the GKN Aerospace arm.
Liam Butterworth, GKN Auto’s current boss, will head the new company, which has yet to be named.
Melrose promised to rejuvenate GKN when it bought the business, but the share price has struggled since the deal was completed and following today’s drop is around 40% lower than the date it concluded the deal.
Interim results today showed half-year losses rising to £358mln from £275mln a year ago on revenues of £3.6bn (£3.4bn).
Critics of Melrose during the takeover battle accused it of being just a financial raider that would break up the business and Russ Mould at AJ Bell said today’s news might spark a chorus of ‘I told you so’.
There is logic to the move, he added, and it might see a greater value attributed to both parts of the business.
“The GKN Aerospace business is lagging behind the automotive side in terms of the progress of its restructuring, perhaps inevitably given the scale of the impact on it from the pandemic, and this move will allow Melrose to bring greater resources and focus to the former.
Investec suggested each business might be worth around £5bn and that freed from its aerospace arm, automotive can fulfil its potential in areas such as electric car engines.
In the latest half year, automotive and metallurgy generated sales of £2.5bn and made an operating profit of £126mln.
Justin Dowley, Melrose chairman said: “Since acquiring GKN in 2018 we have reinvigorated each business to achieve its potential.”
Melrose shares dropped 6% to 129.2p.