When Anne Stevens was confirmed as GKN’s (GKN) new chief executive she would have known that the engineering group was being touted by some City analysts as a potential break-up play. But in the period between Ms Stevens’ interim appointment and formal agreement on the role, the group became the target of an unsolicited £7.4bn takeover approach by turnaround specialist Melrose Industries (MRO). The ex-Ford executive also served as a non-executive director at Lockheed Martin Corp (NYSE: LMT), so you would imagine she possesses the requisite industrial experience to guide the misfiring group through a planned wholesale shake-up. However, she will now have to rely on the continued support of the group’s shareholders – obviously not a given in the wake of two recent profit warnings.
The proposed cash and scrip combination effectively valued GKN at 430p a share. Under the terms of the deal, GKN shareholders would receive 1.49 new Melrose shares and 81p in cash for each GKN share. The offer represents a 29 per cent premium to GKN's share price the day prior to the offer being announced. And, although you wouldn’t characterise GKN as a ‘distressed asset’, it would be no surprise if the Melrose approach acted as a catalyst for private equity interests. The likes of Carlyle Group, which has already been identified as a potential counter bidder, would certainly have noted the £80m-£130m in additional write-downs that was revealed midway through November.
The problems were linked to revised assumptions on programme inventory and receivables for aerospace plants in North America – ironic given the subsequent introduction of the IFRS 15 accounting standard. The revelation meant that the then-chief executive designate Kevin Cummings (previously in charge of the relevant US interests) was forced to stand down even before he started, leaving the FTSE 100 engineer weakened and vulnerable to third-party overtures.
