Ive always found that where Melrose is concerned there record speaks for itself. They dont actually need to hype things up. Their institutional and bank support is excellent. And in fact, if they hadnt paid profits back to investors their balance sheet, since this seems to be a major topic, would be exemplorary. Brush is often brought up, but the sale of the other companies that made up the disparate conglomerate that was FKI made on average almost 3x their cost.
"For someone with no Melrose shares you spend a lot of time posting on this board."
Sort of natural reaction: when a company that I'm invested in gets a bid approach, I like to see what I could be getting. I'm not averse to making money, nor am I against GKN getting new management. In this case i really don't like what I see of MRO, and make my point. I could say the same about you posting on GKN's board.
"Lets make it clear. If Melrose do the things they say they will do to enhance the business YOU will call it asset stripping.
If GKN do the exact same things YOU will call it increasing shareholder value."
Partly true: it's a question of degree and also having enough conviction in your company to hold onto it and grow it through thick and thin. I did say, "much more like the asset stripping of old.", and not that it was asset-stripping pure and simple; although I really don't know.
"As it is GKNs position is so weak they have resorted to name calling. Institutions will see through this."
I wasn't aware that GKN had "resorted to "name calling"". As for institutions seeing through anything, time will tell which company they "see through".
"GKN will have nowhere to go other than be taken over by a US private equity firm who reall are asset strippers."
Well that's obviously without merit: if the MRO bid fails, GKN will continue to be well aware that they could be in play, and will do all they can to enhance the company's value - as the initial announcements by their new CEO makes clear.
Finally, Pike, I find some of your comments towards me, and now Numberbiter, unnecessary and quite offensive.
Lupo (& number) - thanks for your comments. These boards tend to be dominated by people with vested interests in the company in question, so the positive posts tend to be far more common than the negative ones. What I want is to understand all sides of arguments, so welcome any well constructed analysis and opinion positive or negative.
One quick comment about your post - "You don't suddenly achieve a 54% uptick in underlying Operating Profit " - it all depends on your starting point. A business barely breaking even can achieve huge percentage increases in profit in a relatively short time.
The Melrose management have been around for longer than some think. Some members were previously with Wassall. I can remember prior to the 2007 financial crash that prices of assets were hyped up to such an extent that Wassall was unable to compete with private equity groups which were making acquisitions so expensive. The remainder of Wassall was then sold and the management re-emerged when buying in to Melrose when asset prices calmed down. This management would not have built up so much of a following if they were incapable. When they make major sales they prefer to make capital distributions to shareholders and the latter are given the opportunity to take up a rights issue when making major acquisitions. They do not over pay and they will walk away if the price gets too rich. Now what that will do for the sp short term is open to discussion but, over the years I have no regrets. The management are not asset strippers but, they recognise situations where companies are undervalued by the market due to management that has underperformed. (Sp 234p)
The management team at Melrose have created extraordinary returns for shareholders since the original IPO. This has been achieved by allowing the maters of all the businesses they acquired to decide on the appropriate course of action to achieve the ROE set by the centre. GKN has stuttered with an overinflated central cost base and remote management. GKN shareholders can look for an above average return over the next 5 years
For someone with no Melrose shares you spend a lot of time posting on this board.
Lets make it clear. If Melrose do the things they say they will do to enhance the business YOU will call it asset stripping.
If GKN do the exact same things YOU will call it increasing shareholder value.
As it is GKNs position is so weak they have resorted to name calling. Institutions will see through this.
Even if the deal doesnt go through, which I hope it will, Melrose will have other targets to enhance its shareholder value. GKN will have nowhere to go other than be taken over by a US private equity firm who reall are asset strippers.
"Both of you have neglected the Nortek business and the value it brings to Melrose" So why is this 'value' not reflected in the Balance Sheet, apart from a massive surge in intangible assets? The reality is that Melrose paid too much for Nortek and is a busted flush. When the ludicrous bid for GKN fails, this share price will collapse. Reason: the market will wake up to the fact that this company is valueless (liabilities exceed assets).
Very selective research conducted by GKN holders - how about their company - are they as delighted with returns as we MRO shareholders are with ours? I think not. Also amazing to see only two adversaries to the deal on here If it were such a bad deal I'd have expected the world and its dog 'having a go', never mind the markup for both GKN and MRO in the market as a result of the discussions. Someone seems to like it!
Try to keep the unpleasantness out of it, Pike. That's the second time, m8.
Why have Sell as part of your strategy? What is MRO left with? A SP dependent upon, hopefully, the next acquisition. They squeeze as much out of a business as they can, and quite possibly they do improve those businesses, or, at least, they work them to the bone.
Not my cup of tea at all. I'd be very nervous holding these, but each to their own.
"Amazing" indeed, Blue. Here's what MRO achieved in the first 4 months since the Nortek acquisition.
"The former Nortek businesses have already responded very well to the Melrose model. We moved quickly on completion of the acquisition to remove the Nortek Board, close the Providence headquarters and decentralise all corporate functions, including HR, IT, legal, supply chain and distribution.
This provided significant immediate savings, sent a strong and clear message to divisional
management and created good momentum for the operational improvement programs in the businesses themselves. As a result, all three divisions have shown gains already in the short four-month period since acquisition and a pleasing level of cash generation. The internal potential margin targets have been increased beyond those perceived at the time of acquisition."
And here's what they achieved for the first 12 months since acquisition.
"Today marks the first twelve months for the Nortek businesses under Melrose ownership.
Each Nortek business has responded well to the investments we have made, achieving a
record underlying operating profit, 54% up on last year, and their highest ever first half cash
generation. We believe that there are substantial operational improvements still available and
are working hard with the management teams to secure them. Brush is currently facing the
toughest generator market conditions experienced under Melrose ownership and, accordingly,
all aspects of the business are being reviewed."
That tells me that their, "Buy, Improve and Sell" strategy is much more like the asset stripping of old.
You don't suddenly achieve a 54% uptick in underlying Operating Profit solely from any alleged investments and improvements in the first year of ownership. As a broker said, the management don't walk on water.
Furthermore, if they're so wonderful, how come they failed with Brush and had to have another review of "all aspects of the business"?
Amazing all right! Blinkers off, boys and girls, for your own sakes. Take your profits now while the going is good.
Goodwill is the difference between purchase price and fair value of assets acquired. The lower the fair value the bigger the goodwill and therefore future reported profits. This is a hobby horse of mine and I believe it is one of the primary reasons for the failure of Carillion the problem being that you keep needing to do bigger acquisitions. If intangibles had to be amortised as under old U.K. GAAP it would have shown up the underperformance.
None of Melrose's Buy, Improve and Sell companies have been asset stripped. They have all been sold on as a profitable and working organisation - Nortek will be the same - and proceeds divvied out to the shareholders. (FKI, Elster, Nortek soon)
Just to remind you, Melrose are asset IMPROVERS with a proven track record, operate with responsibility and have credibility in the City (creditworthy and trusted).
Now repeat after me....This is NOT a Hanson type company.
What MRO will bring to GKN's table is a measured and practiced management prowess GKN have lacked for many years. To be honest, it doesn't matter to me whether the takeover completes or not (I do see it as a good deal all round btw) as Nortek will deliver my next bounty anyway. Whatever happens, its out of our hands....unless you are a major shareholder with multi-millions tied up in GKN?
Can you honestly say you are impressed by the way GKN has failed to deliver over the last 1,3 or 5 years?
Potential is valued in 'intangible assets'. As I have said before, potential does not often become reality. Take intangibles out (massively high in Melrose's case) and the Balance Sheet is negative.
I loathe takeovers of this type as they are completely without merit. Lord Hanson played this game. He accused the directors of well managed companies of being useless. Institutional holders, mainly lacking a brain, bought in to the nonsense. Hanson came in and stopped all research and development expenditure. Capital expenditure was cancelled. Workers over 40 were sacked which meant the company's pension scheme was in surplus, so it was creamed off. With a reduced capital base and assets being flogged to death, EPS and return on capital employed shot up. Then Hanson sold the business to another brainless bunch, who found out too late that they had bought an empty shell.
What experience do Melrose directors have in GKN's business? Apart from asset stripping what strategy do they have for improving GKN's business?
We can only hope for their sake that GKN's shareholders are not that brainless.
't is wrong to compare Carillion to Melrose. Carillion regularly bought companies made massive provisions generating enourmous goodwill and then releasing these provisions in subsequent years that were then treated as profit'
It is wrong to compare Carillion to Melrose. Carillion regularly bought companies made massive provisions generating enourmous goodwill and then releasing these provisions in subsequent years that were then treated as profit. Looking at Carillions balance sheet over many years showed net liabilities(excluding intangibles ) rising at the same time as apparently rising profits. Analysts look at PE ratios and cannot see the obvious. This is why they wanted to buy Balfour Beatty.
Melrose has bought a business at market value and is going through the process of restructuring that business and properly managing that business that will hopefully produce a business that will be worth considerably more than they paid for it. This is the model that has been succesfuly
pursued over 15 years.
GKN are asking shareholders to back a management that has failed to deliver returns over 20 years despite massive growth in their markets.
I hold approx 2% of my portfolio in Melrose
Both you and Lupo are totally wrong - both of you have neglected the Nortek business and the value that brings to Melrose. Scaremonger all you like, the people you have to convince are GKN's pension trustees - not me or other Melrose investors on this BB - they hold all the cards regards the deal. My belief is this will succeed because it is a good deal, but if it doesn't then GKN is most likely the busted flush and us MRO shareholders will be bathing in the Nortek proceeds when this is sold. Your loss.
Lupo, you have it exactly right. It is about time that Melrose's shareholders looked at their company's accounts. You will find that Melrose's Balance Sheet is in a worse state than Carillion and that company is in liquidation. The only difference between the two is that Melrose's bankers continue to support them. Now for Melrose's figures, calculated from their latest accounts:
EPS on a cash basis (cash inflow from operating activities before movement in working capital) = (5.3p) Note that a figure in brackets means cash expended, not generated. EPS on this basis for the last full year (31/12/16) was a mere 1.4p
Excluding 'intangible assets' Melrose's last (30/6/17) Balance Sheet is negative. This means that liabilities exceeds assets. For shareholders the Balance Sheet value is minus (24p).
At 30/6/17 debt amounted to £709 million and net debt amounted to 34p a share.
The only way this company can survive is to convince gullible shareholders in other companies to be taken over by them. I don't think GKN shareholders are stupid enough to fall for Melrose's bid. Now, as GKN's directors have pointed out the only way Melrose can survive is to effectively steal (legally, of course) other companies assets.
This might be Melrose's last spin of the dice, because when the GKN bid fails, the accounts tell you (figures above) that they are effectively bust and could well end up doing a 'Carillion'. If you play the lottery (believe in miracles) then hold this share; rational advice would be to sell while the going is good.
"Milestones arrive quickly on Wall Street these days where the Dow Jones closed above 26,000 and S&P 500 better than 2,800 for the first time overnight.Trump's pro-business reforms, healthy outlook for corporate profits and an expanding global ..."
Pike - "Sharecast comment makes the point that GKN shares have never been above 400p before."
Hmm, credibility problem somewhere there. It could be that the sharecast writer meant to say, "since I was born, they've never been over 400p". According to a quick look at the chart provided here for us, they've been as high as 600p. Happy to be corrected.
MRO and GKN shares running in tandem, which suggests a deal will be done at 445 to 450p. Todays response a bit desperate but understandable. For institutions a GKN turnaround and Nortek profit is a good move by Melrose.
Not looking too good for Melrose this morning. Check out today's response from GKN. This part should sound alarm bells for MRO shareholders:-
"GKNs own balance sheet is funding the vast majority of the 81 pence per share in cash. Melroses leverage at 30 June 2017 was 2.3x EBITDA, while GKNs leverage at 30 June 2017 was 0.6x EBITDA. As a result, of the total £1,391 million of cash consideration, Melrose is only able to fund up to £75 million WITHOUT LEVERAGE EXCEEDING 2.5x EBITDA. This is equivalent to less than 5 pence per GKN share.The remainder is effectively being funded by GKNs existing balance sheet."
Without GKN to prop-up MRO, they'll be sliding into oblivion. The best bet is quite obviously, having read GKN's full response this morning, to sell MRO and buy GKN. Not trying to be funny, that's seriously the safest course of action for your hard-earned.
Do yourselves a favour and spend a couple of minutes reading GKN's response. I read MRO's announcements.
Are you talking about Nortek? If so, you'll have to wait until April (I believe) for the update - but by all accounts seems to be another winner in Melrose's stable. I expect GKN to be the next company to benefit. The selfish part of me wants MRO to sell Nortek before any deal is concluded so I can reap those rewards, but time is short so it looks like we'll be sharing the spoils with our new companions in arms !
So many people seem to think MRO are like the leveraged buy-out private equity asset strippers, when they are so far removed from that.
There were more people employed by Elster when MRO sold it than when they bought it - because they had grown the business.
"Buy, improve, sell" is written all over the website/accounts/presentations etc. They make no secret of what they do, so Vince Cable is showing himself up a populist ignoramus.
GKN is a fine company with an illustrious history and great customers/partners, but the management has been poor.
It's no biggie if MRO doesn't get them (from an MRO perspective at least), but it would be nice to.
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