Melrose pledges £1bn boost to GKN pension fund

Image source, GKN

Turnaround firm Melrose has confirmed it has offered to invest £1bn in engineering giant GKN's pension fund as it battles to secure a takeover deal.

The move could allay concerns from the pensions watchdog and MPs, who have called for the deal to be blocked.

The offer comes after GKN rejected what Melrose said last week was its final offer of about £8.1bn.

GKN makes parts for planemakers Airbus and Boeing, as well as parts for Volkswagen and Ford cars.

It is one of the UK's largest industrial firms, employing more than 59,000 people globally - 6,000 of them in the UK.

Melrose specialises in buying up industrial companies it believes are undervalued and restructuring them before selling them on. That has raised fears that GKN could be broken up and sold to overseas owners.

The Pensions Regulator had warned previously that the deal could weaken GKN's ability to meet its pension obligations. Melrose had originally offered to invest £150m cash into the GKN pension schemes.

As part of its defence against the Melrose bid, earlier this month GKN announced a plan to merge its Driveline business with US auto-engineering firm Dana, leaving it to focus on the aerospace side of its business.

Melrose had criticised the move, arguing that some GKN investors would not be able to hold the shares in the combined business as they would not be listed in the UK.

However, on Monday, Dana announced that the planned new combined business would also have its shares listed on the London Stock Exchange, as well as the New York Stock Exchange, in order to address this issue.

GKN's chief executive, Anne Stevens, said: "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."

Image source, GKN
Image caption, GKN employs 6,000 people in the UK

Under the terms of Melrose's offer, GKN shareholders would receive 81p in cash and 1.69 new Melrose shares for each GKN share they hold.

Announcing the planned higher contribution to GKN's pension fund, Christopher Miller, chairman of Melrose, said: "GKN's series of hastily-assembled and ill-considered proposals destroy potential value and add significant risk.

"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.

"The proposal we have made to the trustees of up to £1bn of contributions under our ownership is a clear example of what Melrose does which is good for pensioners and shareholders alike and shows we are a good custodian for all stakeholders."

Airbus blow

The battle over GKN has been going on for almost two months, but will be concluded soon with shareholders having until 29 March to vote on the offer from Melrose.

Some shareholders have already said they plan to reject the offer, arguing that the price on offer undervalues the engineering firm.

Unions and some customers have also warned over the implications of the deal.

Airbus - GKN's biggest customer - said it would be "practically impossible" to give new business to GKN if the takeover went ahead.

Either deal still needs to be signed off by GKN shareholders.

A brief history of GKN

Founded in 1759 as an ironworks in South Wales

Involved in aerospace, automotive, materials and manufacturing engineering

Operates in 30 countries with 59,000 employees

Employs 6,000 staff in the UK, mostly in aerospace and automotive technology

Ten UK sites, including Bristol, Cowes, Luton, Portsmouth, Birmingham and Telford.

Chief executive Anne Stephens took over in January

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