"The industrial turnaround outfit that has tabled a £7.4bn hostile bid for GKN could be poised to hand its shareholders a cash windfall of up to £1bn. Bidders are believed to be circling Ergotron, an American manufacturer of ergonomic desks and stands for computer screens owned by Melrose Industries.........
...... Melrose will this week intensify its charm offensive with GKN shareholders, as the listed private equity firm tries to persuade them it would be a better steward of the FTSE 100 company that makes parts for the Airbus A380 superjumbo."
Hope numberbiter has the backing of the appropriate authorities to be able to offer his advice here. FCA, for example, take an extremely dim view of market abuse. (Note the important message from the FCA when posting). Tread carefully - naivety, ignorance or stupidity are not recognised defences.
I support GKN and would advise shareholders that Melrose's bid is ludicrous. The reason I say 'sell now' is that if Melrose's bid fails, then the price will fall by 20%. On the other hand, the biggest disaster for GKN's shareholders would be if the bid succeeded as that would halve the value of the company. I repeat the if you ignore intangible assets (like Carillion) Melrose's Balance Sheet goes negative (liabilities exceeds assets).
If a new bidder came in the likely bid would not be much greater than the current price. So, in probability terms the potential downside is 0.9, while the upside is 0.1.
Those, like Lupo, who support GKN can buy the share back after it falls back to its fair value.
never wrong to bank a gain mnamna .may follow you soon and sell ...lack of selling pressure (for now) indicates that GKN is toast . what all this shows is how bad the market is at valuing a business and we should be grateful that MRO have pointed this out .
'My advise for private investors would be to sell GKN's share now. The only way this could be bad advice would be if another bidder (this time solvent) entered the fray. If there is no other bid and the Melrose bid fails, both GKN's and Melrose shares will fall.'
I found the reference to 'fake premium' to be both bemusing and amusing :-)
There is no doubt that MRO figures are correct and also that GKN's figures are correct! Semantics appears to play a part.
The market appears to be leaning towards MRO's valuation - or perhaps the expectation of another bidder.
It is perhaps true that the only way to realise the full premium is to sell your shares now, something I am increasingly tempted towards.
Let me be clear. I wish this bid approach had never been made. I also wish that GKN board had performed a lot better over the last 18months. The failures to achieve targets, unanticpated writedowns and the travesty of the CEO replacement resulting in an already retired NED stepping in as Interim CEO have led to this position. Choose MRO and the company will be 'improved' and then sold off in bits (or possibly demerged). Choose GKN and the company will be 'optimised' and then split.
What's to choose? Neither option is the longterm investment I was originally looking for?
Tending towards sell today - not because its a bad company but it's no longer the investment I want,
I advise GKN shareholders to read my 'Melrose' post. If you look at Melrose's accounts, you will see that in accounting terms this company is effectively bust. It has massive debts and if you ignore intangible assets the Balance Sheet is negative, meaning that liabilities exceed assets. The only way Melrose can survive is by clever financial manoeuvering, such as bidding offering a share swap rather than cash.
No GKN shareholder in their right mind would accept the Melrose offer. In accounting terns the real value of Melrose's shares in Nil, so of you accept the offer you will be getting 81p and losing (at today's price) 446p.
My advise for private investors would be to sell GKN's share now. The only way this could be bad advice would be if another bidder (this time solvent) entered the fray. If there is no other bid and the Melrose bid fails, both GKN's and Melrose shares will fall. The worst thing that could happen to GKN's shareholders would be if the Melrose bid was successful.
Yes, read it earlier. But I cant see how you think the Melrose share price is being propped up by GKN. It was about 215p before the announcement. Its the market that sets prices, not companies, and the market is obviously in favour of the deal. Have you looked at Mix and Match yet?
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.
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.
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