Lupo. I think you wont have a choice in the end, but if you bother to look at the full document on the Melrose website you will see that there is a Mix and Match section where you can vary the proportions of cash and shares. Its for people like you.
Obviously it's accepted that MRO shareholders, not to mention Directors!, have done very well out of their company; although just how much of that is due to (uncertain) sp appreciation I do not know.
But, bearing in mind that MRO's sp can fall, and would fall massively if there were to be a hiccup, as happened mildly last year, and bearing in mind that GKN's management know their company far better than MRO ever could, and bearing in mind that AS is well aware that she's got to deliver, I firmly go along with GKN's comment below.
"GKN's new management, Chief Executive Anne Stevens and Group Finance Director Jos Sclater, are currently undertaking a series of shareholder meetings to explain why GKN's current owners should retain 100% of the benefits of the upside potential in GKN, rather than handing 43% to Melrose?s management and shareholders."
To me, it's far too risky to accept the 81p + MRO shares.
GKN are quite capable of investing in the business, as MRO so proudly pronounce that they do. Of course you invest in your business. Where GKN probably have been less aggressive than MRO is with their suppliers payment terms - another thing that MRO proudly pronounces.
Just to give the naysayers a clue. I bought GKN in Nov 13 and Melrose in Sept 14. In that time I took up a couple of Melrose rights issues and later sold some. As of 5th January this year (before the bid) and including dividends and cash returns, GKN was giving me a 7.27% loss and Melrose a 143.22% profit. Which is the better company to hold do you think?
Been watching MRO but the shareprice has always been a bit too steep to tempt me.
A quick google reveals that MRO does have a history of returning Cash to shareholders. This from 2 years ago:
'29 Dec 2015 - "With this latest return of capital, Melrose will have given back to investors approximately £4.3 billion in cash'
MRO total return appears to exceed GKN's current market capital and shareholders have had most of that in Cash.
That leads me to believe MRO management deserve a fair hearing.
Especially as I was less than happy with the GKN recent management failures. On top of that the new GKN CEO is suddenly proposing a 180 strategy about turn and an immediate split of the GKN business. Why? I can't see the difference between this new strategy and a rapid take-over defence? Seems to me it's less about the best options for the business than the short term preservation of the current management?
Perversely MRO appears to be suggesting what I'd expect GKN to be doing - defending its existing strategy.
I am struggling to decide whether to take my gains now or back the MRO management?
I can't see a reason to back the current GKN management? And this is all about 2 management teams. And a name change? Nothing much else changes? The current GKN shareholders will be majority owners of the new MRO (as well as some cash in the pocket)?
In fact, if I back MRO I get to take my gains in cash and put my original stake back on MRO. What's not to like? What have I missed?
Each to their own, Pike. MRO have a hiccup and their SP falls, we'll be the proud owners of 81p + whatever MRO SP ends up at.
If I thought that MRO management had real credibility, I'd accept their offer - trust me - but I believe that they're merely asset strippers, contrary to what some say, and that they will come a cropper. I also believe that, having had a fire lit under them, and with AS at the helm, GKN will do very nicely on their own without the risk of MRO suffering a glitch.
It seems to me that a lot of MRO investors' gains have been in paper. Take that away and what's left of their boasts.
The bit that says, "increased margins to 70%" should obviously read, including the whole statement, "improved underlying operating margins in our own businesses by 30 to 70 per cent from their original levels."
1.49 new MRO shares + 81p cash for each GKN share = 430p
Pathetic offer. Already MRO are down to 230p, so that equates to 424p, and that just demonstrates how dependent upon MRO sp we'd be.
It's no good MRO saying that with their previous acquisition they've done so and so and increased margins to 70%. They're not magicians at MRO, and bear in mind that a lot of the so-called gains that they've made for investors have been dependent on their sp.
Don't accept. Give AS a chance. Knowing that they're in play, GKN management will do everything possible to enhance performance.
"LONDON (Alliance News) - GKN PLC's largest active shareholder, Vulcan Value Partners, has called on the company to open talks with Melrose Industries PLC, after the FTSE 100 engineering company declined a GBP7 billion cash and stock deal by the FTSE 100 industrial turnaround specialist, the Financial Times reported Monday.
Vulcan Value Partners, a Alabama-based asset manager that holds roughly 4% stake in GKN, told FT in an emailed statement that while the transformation and demerger plans unveiled by the company appeared sensible, they were not enough to justify rejecting discussions with Melrose.
"We believe the Melrose offer does not reflect the intrinsic value of GKN, and this position is supported by the current market price of GKN," Vulcan Value Partners' founder and chief executive, CT Fitzpatrick, added in the emailed statement to the newspaper.
Fitzpatrick also stated that it was difficult to judge between GKN's plans to transform the business and Melrose's offer, because GKN did not provide details of its plan.
A GKN spokesperson told FT: "Shareholders are of course fully entitled to their opinion. But the board believes the proposal is entirely opportunistic and terms fundamentally undervalue GKN and its prospects."
As Kingel reports, the downside is limited. There's a way to go yet: MRO has to come out with its offer document, and GKN has to respond. AS has had very little time to come up with any great detail, but we can be sure that GKN are working on just that. When that comes out we'll (I'll) be able to decide which option to go for - not that that's going to influence the outcome, lol.
(ShareCast News) - Berenberg upped its price target on GKN to 455p from 365p on Monday, sticking with its 'buy' rating as it said it seems inevitable the engineer will end up being owned by Melrose Industries, after it rejected a £7bn bid last week.
GKN said on Friday that it had rejected a bid proposal from Melrose and appointed Anne Stevens as chief executive, as it announced plans to separate its aerospace and automotive businesses. It said that the bid was "entirely opportunistic and that the terms fundamentally undervalue the company and its prospects".
"The rejected 405p bid undervalues GKN, in our view, but we believe Melrose has scope to significantly increase its offer by the 9 February deadline," Berenberg said, also highlighting the potential of a counter-bid following press reports that private equity firm Carlyle might interested in making an offer.
The bank is assuming Melrose will up its offer to 455p, which indicates a further 8% upside to the GKN share price. "Given that the deal structure allows significant participation in any upside that Melrose achieves, we believe GKN management will be hard pushed to reject such an offer."
According to Berenberg, Melrose walking away is the least likely outcome. It said that previous transactions demonstrate that Melrose's management is financially disciplined and that it does not over-pay.
"If it was to make a higher offer that is again rejected by GKN, we believe the downside to GKN shares is limited to around the around 400p level (ie 4% to 5% lower), on the basis that GKN's own strategy to improve performance and separate the group suggests a similar path to realise value, including potential break-up."
There is also the possibility of a counter-bid, with Carlyle reportedly in the frame and another industrial buyer unlikely.
"We have no particular insight as to how a PE strategy to unlock value from GKN might differ from the Melrose plan. However, given Melrose's expertise in industrial turnarounds its shareholders (and the new ex-GKN shareholders) will therefore expect significant valuation upside in the years following the deal. On this basis, we suspect any private equity approach would need to be at even greater premium than whatever price Melrose comes back with."
Even if a deal between Melrose and GKN falls apart, the stock's downside is limited, Berenberg said, as it suggested investors keep hold of the stock.
At 1530 GMT, GKN shares were up 5% to 440.80p while Melrose was up 1.8% to 231.50p.
LONDON (Alliance News) - Melrose Industries PLC said on Monday it believes GKN PLC to be an "overly complex" and "under-managed" company in need of fundamental change in culture and leadership.
Melrose, whose GBP7 billion mixed cash and share offer for GKN was rejected last Friday, said GKN has underperformed to FTSE 350 by around 26% since Melrose's flotation in 2003, whereas Melrose is the third best performing company on the index over the same period, outperforming GKN by 18 times.
It charged that GKN has a history of missed targets since 2011, and if it were to achieve the top end of its divisional trading margin targets in 2017 as stated since 2011, it would post profit GBP300.0 million above consensus. Its trading margin has not risen over the period, Melrose said, a "lost opportunity".
Melrose said it would re-energise and re-purpose GKN, enabling it to exceed GKN's own top-end group trading margin of 10%.
Melrose Chief Executive Simon Peckham commented: "We are aiming to put into sharp focus the options for GKN shareholders. They can elect to sell in the market right now for a substantial premium to Friday's opening price - which itself has increased following a rise in the price of Melrose's shares.
"Or, they can choose to combine their business with ours and have the majority share in what we are confident will be a business capable of significant value enhancement. This is in stark contrast to a break up of the business by a GKN management team which has consistently underperformed or a hasty possible sale of parts or all of the business to third parties who don't share our objectives of creating long term value for shareholders."
GKN's board unanimously rejected the offer, describing it as "opportunistic" and one that undervalues the company. GKN, which in October last year said business performance was not meeting management expectations, said on Friday it will separate its aerospace and automotive division and launched a so-called "Project Boost" performance improvement programme.
The Sunday Times reported on Sunday US firm Carlyle Group is mulling a counter-offer for GKN.
Melrose shares were up 0.9% early on Monday at 225.50 pence each, while GKN shares were up 2.1% at 429.00p.
GKN, the FTSE 100 aerospace and automotive company which issued a shock profit warning in November, has rejected an unsolicited £7bn approach from rival Melrose and unveiled plans to split in two.
A bid battle is now likely as Melrose, which specialises in buying struggling businesses, turning them round and selling them at a profit with the proceeds given back to shareholders, will pursue its interest despite GKNs opposition.
GKNs shares jumped by more than a quarter to an all-time high of 420p on the news, above the initial 405p cash and share offer on the table from turnaround specialist Melrose. But Melrose shares have subsequently climbed 7%, lifting the value of the offer to 422p a share.
Analysts at Jefferies said the company could be worth as much as 504p a share.
The proposed takeover was immediately criticised by Liberal Democrat leader Vince Cable, who said it was a serious threat to the governments industrial strategy:
GKN said: The proposal is entirely opportunistic and that the terms fundamentally undervalue the company and its prospects. In addition, the proposal would materially dilute the exposure of GKN shareholders to the meaningful upside opportunities that the board believes are present within the company.
Melrose responded, saying: Melrose believes that there would be significant operational and commercial benefits arising from Melroses ownership of GKNs businesses, reversing a history of existing GKN management not delivering on margin targets. The potential acquisition represents a significant opportunity for Melrose to execute on its strategy of maximising inherent value of specialised industrial businesses it owns.
GKN, which used to be known as Guest, Keen and Nettlefolds and traces its history back to 1759, has struggled in recent years and its profit warning came after a downturn in its US aerospace business. It expects to write down between £80m and £130m as the value of stocks at the division had been overestimated. The biggest factory, in St Louis in Missouri, makes air frames for F-15 and F/A-18 fighter jets.
Following the warning, its proposed chief executive Kevin Cummings was ousted from the business even before he took up the post and was replaced by non-executive director Anne Stevens on a temporary basis. Now Stevens, a former senior executive at Ford, has been handed the job permanently.
GKN said Stevens had conducted a review which would split its aerospace division - formed by the purchase of a stake in Westland helicopters in 1988 - from its automotive business.
It said both businesses would benefit from being separate companies with distinct investment profiles and capital allocation policies.
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: The separation of the automotive and aerospace units has been on the cards for years, with little obvious crossover between the two businesses. Historically, the pension deficit has held the group together, but with the sprawling footprint likely to have contributed to recent profit warnings, the reasons for divorce now seem to outweigh the costs of splitting.
The money to be made from a split is likely to have been what drew turnaround specialist Melrose to the table in the first place - the challenge for newly confirmed chief executive Anne Stevens is to deliver a better result for shareholders than the 405p she turned down today.
GKN said current trading was in line with expectations, with 2017 profits expected to be slightly ahead of the 2016 figure of £678m before the US write-off.
Melrose has until 9 February to either make a firm bid or walk away. The company was founded and floated on the stock market in 2003 as a cash shell by three businessmen, Christopher Miller, David Roper and Simon Peckham, who put about £3m into the business. It is now valued at more than £4bn, having returned £4.4bn to shareholders since its formation.
Last May it emerged that the three founders, plus chief financial officer
Had a brief look earlier, Sound, and found myself bemused: Shares in issue up by 3x over 6 years; turnover up/down; divi up/down; debt some £690m on revenue of about £2000m; sp up v smartly but languishing over last year or so, and so on.
I gather that they've had a few successes, but you know what - I've seen it all before. They're financial engineers, not automotive/aerospace engineers. They'll strip GKN down to its chassis and then hope to sell it on to, as I say, a real company, but that won't happen. Why? because a real big auto company will, as said (once again) pick up GKN before MRO gets their hands on it, and certainly not after.
MRO can't fail here. They're striking just when GKN looks to have a good chance of recovery with AS at the wheel. They build s stake and they can then sell it on; hang on for the ride, or succeed in their bid and do the Anne Stevens bit.
Certainly, they're smart - in a street-wise way.
I know that appearances aren't everything, but took a look at the Directors. Would I buy a sack of coal off of them? Not a chance.
I agree with you sound money. You can be sure they have done their sums well and probably would have expected the sp reaction. An opportune time to bid given recent weakness and management change. I hold both cos shares but, must admit, Melrose have done well for me over the years. Continuing to hold both stocks. (sp 420p)
" It didn't mention that they'd do anything that AS couldn't achieve"
Lupo -- I know one thing they woud do -- "stuff it full of debt, slash the headcount to the bone and then flog it off again"
Melrose business model is to acquire,"add value" and sell to service returns to the shareholders. They are in fact pretty good at it, although they are really struggling with the brushes business at the moment. The adding value bit yourself of course!
Invariably they act like crows, they sell, sit on a huge pile of cash and then wait for whoever is feeling the most pain, then swoop low, grab the bait and cart it off to their nest to prepare it for it's future - i.e. swallowed up by the most willing buyer.
Just read MRO's response, and it sounded really amateurish with thinly veiled threats that the offer might be reduced..feeble. It didn't mention that they'd do anything that AS couldn't achieve, and that without asset-stripping it.
Wonder if MRO have picked up a stake and hope to sell it on to a real company. Yup, that's my reading of it.
Hmm, been looking at MRO - smoke n mirrors outfit.
I reckon that AS will do as good a job as MRO, while keeping focus on GKN's future. I've held these through thick n thin (mostly thin lately, admittedly) since 2003, and am happy to give AS the benefit of the doubt. MRO has lit a fire under GKN, and that won't go away.
I'm assuming that MRO will be buying-up GKN shares, and have done. Going to have to wait now for the offer document, but unless MRO come up with something new in the way of strategy, I'll stick with GKN. That'll worry the city, lol.
GKN may have been undervalued but the takeover process should achieve full value. Better that than gamble on a complex and costly reorganisation. Either way we will have a new management and at least the Melrose chaps have a superb track record .
By the way why does GKN need so many expensive investment bank advisers? Wouldn't one do? Or two ? But three ?!
well it's good news that Melrose see that GKN is /was undervalued by the market .Melrose is a smaller business so its proposal is a reverse takeover/either way takeover or not GKN is revived and hopefully more accurately valued going forward .
> if it happens, please could it finalise after 5th April, cos GKN's still in my old trading account and I'm up to my limit in capital gains.
I think you'll be ok for most of your gain - if the deal goes through, you'll receive 80% of your payment in Melrose shares, and you won't realise that part of your capital gain until you sell them. (But don't rely on me, ask a tax accountant.)
Lupo -- It's probably a good time to sell, given the share price has gone well above the Melrose offer and probably it's been seen off completely.
Also Ann's grand plans always look good on paper and the stock price has reacted so positively and euphorically towards it, but it ain't going to be as easy in practice to split these divisions and sell them.
Especially as the aerospace market and auto markets are beginning to struggle.
Maybe once the dust settles and Melrose is off the table the share price will drift well back below 400 and shareholders could look back on a missed opportunity.
After a bit of thought, this could go for - what, 450p? It's been as high as 600p, but times are changing and it's got a fair bit of debt.
I'm easy either way, if AS gets it to perform as it should, and she's making the right noises - from her background it sounds as if kicking ar ses and generating cash are everyday life for her - we'll eventually get back to 500/600p; so I should prefer that. But you never know what's around the corner, and a bird in the hand...
Anne Stevens confirmed as new CEO - scary looking bird, but who cares as long as she does the job well. Surely, one of these days, someone's going to come along and make this work; maybe AS. Always so full of promise, but they seem incapable of turning the revenue into cash - reminds me of Lucas.
"Investors remain jittery after a disappointing 10 days. Euphoria created by the rally from mid-September lows has been replaced by renewed speculation that this bull run is over. Given the @GB:UKX:FTSE 100 is down around 75 points on the week ..."
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