Talk is cheap; execution is what matters. That formed the sub-text of Melrose Industries’ (MRO) response to a new strategy and transformation plan from GKN (GKN) designed to deter shareholders from accepting the terms of what has become a decidedly hostile takeover bid. The “killer fact”, according to Melrose, is that “GKN is waving the prospect of a £2.5bn cash return to shareholders” over the next three years funded primarily through the proposed sale of its powder metallurgy unit.
Melrose, in keeping with its shtick as a turnaround specialist, plans to keep the business within the fold and incrementally build value and margins, before eventually selling it. Under the Melrose offer, GKN's shareholders would receive an immediate £1.4bn in cash and further cash payments in the medium term.
A Melrose spokeswoman dismissed the plan as “long on adjectives and promises but desperately short on detail” and “a stark admission of management failure”. And what detail there is points to some hefty remedial charges. GKN reckons that its Project Boost programme will require one-off costs of £450m, with around 32 per cent incurred this year, a further 44 per cent in 2019, and the remainder in 2020. By that time, GKN’s management anticipates the strategy will have delivered £340m in annual cash benefits.
