Engineering group Melrose (MRO) has said it would split its automotive and aerospace businesses into two separate listed entities.
The company will demerge shares into a new holding company, DemergerCo, which will house the automotive business assets. Melrose Industries will continue to run the aerospace arm. Chief executive Simon Peckham and group financial director Geoffrey Martin will sit on the boards of both companies, with the automotive arm continuing to be run by its chief executive, Liam Butterworth.
Both divisions were acquired through Melrose’s £8.3bn hostile takeover of GKN in 2018.
The company’s turnaround efforts at GKN have been hampered by Covid-19, which has hit both sectors hard. Melrose's restructure of automotive is now largely complete but with the industry still dogged by supply chain challenges, earning a decent return through a sale in the current market could be a struggle. Its restructuring of the aerospace business is expected to complete next year.
Demerging the business will allow it to pursue other opportunities, including “targeted M&A” to act as a consolidator in the industry, the company said.
Broker Stifel said the proposed structure could “help release trapped value”, particularly in the aerospace arm, although the automotive business might have a tougher job of convincing investors about its prospects given cyclical pressures in the wider economy, it said.
Investec put a preliminary valuation of around £4.9bn on the automotive arm and £5.1bn on the aerospace unit.
