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GKN PLC  -  GKN   

Rejection of Melrose's revised and final offer

Released 15:25 12-Mar-2018

RNS Number : 4621H
GKN PLC
12 March 2018
 

LEI: 213800QNZ22GS95OSW84

 

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF THAT JURISDICTION.

 

12 March 2018

 

GKN plc ("GKN")
 Rejection of Melrose's Revised and Final Offer

Earlier today, Melrose Industries PLC ("Melrose") announced revised terms of its offer to acquire the entire issued and to be issued share capital of GKN, consisting of 1.69 new Melrose shares and 81 pence in cash per GKN share (the "Revised Offer").

 

The value in GKN

 

The Board believes that Melrose's Revised Offer continues to fundamentally undervalue GKN as it:

 

·     does not reflect the value of GKN's world class Aerospace business including the implementation of Project Boost and the creation of a standalone company, which GKN expects will lead to a positive re-rating in line with peers; 

·     does not reflect the benefits of combining GKN Driveline and Dana Incorporated ("Dana"), which brings together two highly complementary businesses with considerable synergies to create a global leader in driveline. GKN shareholders will own 47.25% of this new combined company and GKN will receive cash proceeds, net of pension transfers, of £1.2bn. The Board believes that this combination, which values GKN Driveline at $6.2bn and represents a 2017 EV / EBITDA multiple of 7.6x, is on highly attractive terms for GKN shareholders;

·     does not reflect the return of up to £2.5bn in cash to GKN's shareholders over the next three years, a significant part of which is expected to come in the next 12 to 18 months; and

·     does not reflect an illustrative trading sum-of-the-parts value of GKN as presented in GKN's second response circular, which illustrates a value of over 500 pence1 per GKN share.

 

GKN has today posted its second response circular to shareholders, which is available at www.gkn.com. Although published at the same time as Melrose announced its Revised Offer, this circular addresses many of the inaccuracies contained in Melrose's announcement today, so they are not repeated here. GKN would however highlight the following principal points below.

 

Melrose's Revised Offer is not 467 pence per share, it is actually 445.5 pence per share

 

Melrose is including GKN's announced dividend in its offer

In its Revised Offer, Melrose stated that GKN shareholders on the register on 6 April 2018 would be entitled to receive GKN's final proposed dividend of 6.2 pence per GKN share (the "GKN Final Dividend").  The GKN Final Dividend announced by the GKN Board on 27 February 2018, relates to GKN's financial results for the year ended 31 December 2017, has already been earned by GKN's shareholders. Subject to shareholder consent, it will be paid in May 2018 as usual. 

 

Excluding the value of the GKN Final Dividend, Melrose's Revised Offer is 460.7 pence per GKN share, based on Melrose's closing price of 224.7 pence per share on 9 March 2018, not 467 pence as Melrose claims.

 

As of noon today the Revised Offer was worth only 445.5 pence per share

Furthermore, it is notable that the closing price per Melrose share on 9 March 2018 represented an increase of 4% on the closing price the previous day. Melrose's share price has since fallen back and at 12:00 today was 215.7 pence per share.

 

Taking both these points together the Revised Offer actually values GKN at 445.5 pence per share. 

 

GKN's world class Aerospace business

 

On the basis of Melrose's Revised Offer of 445.5 pence per share and the assumptions for the values of Driveline, Powder Metallurgy and other non-Aerospace adjustments included in GKN's illustrative trading sum of the parts valuation1 in the second response circular, the implied value of Melrose's offer for GKN Aerospace is equivalent to a multiple of only 9.6x 2017 EV / EBITDA.  This excludes any of the benefit of the increase in the core Aerospace trading margin from 10.3% in 2017 to at least 14% in 20202, as targeted by Project Boost.  In addition, this multiple is significantly below the average EV / EBITDA multiple for a range of precedent Aerospace transactions of 13.6x as set out in GKN's first response circular published on 15 February 2018.

 

Since announcing an intention to separate its Aerospace and Driveline businesses, GKN has received a number of approaches for GKN Aerospace at values significantly above what it believes is reflected in GKN's share price today. GKN has chosen not to proceed with any of these approaches in order to focus on the opportunities presented by the Project Boost improvement plan, the RRSP (revenue and risk sharing partnership) portfolio and a positive re-rating for GKN Aerospace. The Board is committed to creating an even more valuable Aerospace business.

 

Highly complementary combination of GKN Driveline and Dana

 

Contrary to Melrose's claims, the proposed combination of GKN Driveline and Dana (the "Proposed Transaction") is a natural acceleration of GKN's strategy to separate its Driveline and Aerospace businesses. It brings together two highly complementary businesses, with significant synergies, and creates a global leader in vehicle drive systems across all three mobility markets - light vehicle, commercial vehicle and off-highway.

 

GKN's discussions with Dana pre-date Melrose's opportunistic approach. Both parties are fully committed to completing the Proposed Transaction by Q4 2018. The combination of the two businesses is inherently complementary and neither party envisages any significant antitrust issues.

 

GKN has a Trustee approved plan on pensions

 

Melrose is misleading GKN shareholders and pensioners

Melrose has made a number of misleading statements regarding GKN Aerospace's future exposure to pension liabilities.

 

Unlike Melrose, GKN has agreed a liability reduction and deficit elimination plan with the trustees of GKN's UK pension schemes. Once implemented, this plan is expected to enable GKN Aerospace to operate with pension schemes that have been right-sized in proportion to its EBITDA and without any UK pension deficit.

 

The Trustees of the UK pension schemes issued an announcement of their support for this plan on Friday 9 March. GKN can only presume that Melrose missed this so it is repeated below:

 

"The Trustees believe that their agreement with GKN, which is subject to the offer by Melrose Industries plc lapsing or being withdrawn, provides appropriate mitigation to the schemes in relation to the proposed transaction with Dana and the proposed business disposals."

 

In contrast, GKN notes that Melrose has given no further details of its plans or commitments in relation to the GKN pension schemes beyond those set out in its original offer announcement.

 

GKN Board recommendation

 

The Board of GKN has considered the Revised Offer together with its financial advisers, Gleacher Shacklock, J.P. Morgan Cazenove and UBS Limited (the "Advisers"), and has unanimously rejected it, having concluded that the Revised Offer fundamentally undervalues the company and its prospects. In providing their financial advice to the Board, the Advisers have taken into account the Board's commercial assessments. Gleacher Shacklock and UBS Limited are providing independent financial advice to the Board for the purposes of Rule 3 of the City Code.

 

Mike Turner, Chairman of GKN plc, said:

 

"The Board believes that Melrose's Revised Offer continues to fundamentally undervalue GKN and has no hesitation in unanimously rejecting it.

 

"Shareholders should be aware that Melrose is asking them to accept its acquisition paper at 22x 2017 earnings, in exchange for world class businesses which Melrose's offer only values at 14x 2017 earnings.

 

"Melrose is not the right owner of GKN.  Its management lacks relevant experience and its short term business model is inappropriate for GKN's customers and its investors. Winning new business in our markets would be more difficult if customers were uncertain as to the identity of their future long term partners.

 

"Over the past few weeks, we have demonstrated how much we can achieve for our shareholders. We ask for shareholders' support as we continue with the transformation of GKN. Give us the opportunity to finish the job. Reject Melrose's offer."

 

Notes:

 

1. Illustrative valuation on the basis of a number of assumptions that are detailed in the "sources and bases" (Appendix I of GKN's second response circular). This is not an asset valuation for the purposes of Rule 29 of the City Code on Takeovers and Mergers (the "City Code").

 

2.  This statement should not be construed as a profit forecast or interpreted as such.

 

 

Contacts:

 

GKN plc

Guy Stainer, Investor Relations Director                                                                              

Tel: +44 (0)20 7463 2382

 

FTI Consulting

Andrew Lorenz / Richard Mountain                                                                                                            

Tel: +44 (0)203 727 1340

 

Gleacher Shacklock (Financial Adviser to GKN plc)

Tim Shacklock, Dominic Lee, Tom Quinn                                                              

Tel: +44 (0)20 7484 1150

 

J.P. Morgan Cazenove (Financial Adviser and Corporate Broker to GKN plc)

Robert Constant, Dwayne Lysaght, Stephen Smith                                          

Tel: +44 (0)20 7742 4000

 

UBS (Financial Adviser and Corporate Broker to GKN plc)

Hew Glyn Davies, James Robertson, Jonathan Retter                                    

Tel: +44 (0)20 7567 8000

 

Further information

 

This announcement is not intended to, and does not, constitute or form part of any offer, invitation or the solicitation of an offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of, any securities whether pursuant to this announcement or otherwise.

               

The distribution of this announcement in jurisdictions outside the United Kingdom may be restricted by law and therefore persons into whose possession this announcement comes should inform themselves about, and observe, such restrictions. Any failure to comply with the restrictions may constitute a violation of the securities law of any such jurisdiction.

 

Gleacher Shacklock LLP ("Gleacher Shacklock"), which is authorised and regulated by the Financial Conduct Authority in the United Kingdom, is acting exclusively as financial adviser to GKN and no one else in connection with the matters set out in this announcement and will not be responsible to anyone other than GKN for providing the protections afforded to clients of Gleacher Shacklock or for providing advice in connection with the subject matter of this announcement or any other matter referred to herein.

 

J.P. Morgan Securities plc (which conducts its UK investment banking business as J.P. Morgan Cazenove) ("J.P. Morgan Cazenove") is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the United Kingdom. J.P. Morgan Cazenove is acting exclusively as financial adviser to GKN and no one else in connection with the matters set out in this announcement and will not regard any other person as its client in relation to the matters set out in this announcement and will not be responsible to anyone other than GKN for providing the protections afforded to clients of J.P. Morgan Cazenove or its affiliates, nor for providing advice in relation to any matter referred to herein.

 

UBS Limited ("UBS") is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the United Kingdom. UBS is acting exclusively as financial adviser to GKN and no one else for the purpose of the consideration of a proposed acquisition by Melrose and will not be responsible to anyone other than GKN for providing the protections offered to clients of UBS nor for providing advice in relation to the subject matter of this announcement or any transaction, arrangement or other matter referred to herein.

 

No profit forecasts or estimates

 

No statement in this announcement is intended as a profit forecast or estimate for any period.

In accordance with Rule 27.2(d) of the City Code on Takeovers and Mergers (the "City Code"), the directors of GKN (the "Directors") confirm that:

·     the estimate for the RRSP derived net cash inflow for the year ended 31 December 2017 (the "Cash Flow Estimate");

·     the forecast for the RRSP derived net cash inflow for the year ending 31 December 2018 (the "Cash Flow Forecast"); and

·     the forecast for the RRSP derived net cash inflow for the years ending 31 December 2019-2055 (the "Long Run Cash Flow Forecast"),

each of which as set out in the announcement made by GKN entitled "GKN Aerospace: Generating value for decades to come" on 27 February 2018 (the "GKN Aerospace Announcement"), remain valid.

Each of KPMG LLP ("KPMG"), Gleacher Shacklock, J.P. Morgan Cazenove and UBS has also confirmed to GKN that the report that they previously produced in connection with the Cash Flow Estimate and Cash Flow Forecast (as set out in Parts B and C of Appendix 2 to the GKN Aerospace Announcement) continues to apply.

 

Quantified Financial Benefits Statement

 

No statement in this announcement is intended as a quantified financial benefits statement.

In accordance with Rule 27.2(d) of the City Code, the Directors confirm that:

·     the quantified financial benefits statement arising in connection with GKN's new strategy and transformation plan along with its cash improvement initiative as set out in Appendix 2 to the announcement dated 14 February 2018 made by GKN entitled "Moving GKN to world class financial performance" (a copy of which is available on the GKN website) (the "GKN Strategy Announcement") (together, the "Boost Quantified Financial Benefits Statement"); and

·     the quantified financial benefits statement arising in relation to the anticipated cost synergies, capex synergies, associated one-off costs and phasing of both the synergies and/or one-off costs which may arise from the proposed combination of GKN Driveline and Dana Inc. to create Dana plc as set out in Appendix 3 to the announcement dated 9 March 2018 made by GKN entitled "Proposed Combination of GKN Driveline and Dana" (a copy of which is available on the GKN website) (the "Proposed Combination Announcement"), (together, the "Synergies Quantified Financial Benefits Statement"),

remain valid.

Each of KPMG, Gleacher Shacklock, J.P. Morgan Cazenove and UBS has confirmed to GKN that the report that they previously produced in connection with the Boost Quantified Financial Benefits Statement (as set out in Parts B and C of Appendix 2 to the GKN Strategy Announcement) continues to apply.

 

Each of KPMG, Gleacher Shacklock and J.P. Morgan Cazenove has confirmed to GKN that the report that they previously produced in connection with the Synergies Quantified Financial Benefits Statement (as set out in Parts B and C of Appendix 3 to the Proposed Combination Announcement) continues to apply.

The Boost Quantified Financial Benefits Statement and the Synergies Quantified Financial Benefits Statement relate to future actions and circumstances which, by their nature, involve risks, uncertainties and contingencies and which may in some cases be subject to consultation with employees or their representatives. The targets, cost savings and efficiency gains referred to may not be achieved, or may be achieved later or sooner than estimated, or those achieved could be materially different from those estimated. For the purposes of Rule 28 of the City Code, the Boost Quantified Financial Benefits Statement and the Synergies Quantified Financial Benefits Statement are the responsibility of GKN and the Directors.

Disclosure requirements of the City Code

 

Under Rule 8.3(a) of the City Code, any person who is interested in 1% or more of any class of relevant securities of an offeree company or of any securities exchange offeror (being any offeror other than an offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the offer period and, if later, following the announcement in which any securities exchange offeror is first identified. An Opening Position Disclosure must contain details of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s). An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 pm (London time) on the 10th business day following the commencement of the offer period and, if appropriate, by no later than 3.30 pm (London time) on the 10th business day following the announcement in which any securities exchange offeror is first identified. Relevant persons who deal in the relevant securities of the offeree company or of a securities exchange offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing Disclosure.

 

Under Rule 8.3(b) of the City Code, any person who is, or becomes, interested in 1% or more of any class of relevant securities of the offeree company or of any securities exchange offeror must make a Dealing Disclosure if the person deals in any relevant securities of the offeree company or of any securities exchange offeror. A Dealing Disclosure must contain details of the dealing concerned and of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s), save to the extent that these details have previously been disclosed under Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 pm (London time) on the business day following the date of the relevant dealing.

 

If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of an offeree company or a securities exchange offeror, they will be deemed to be a single person for the purpose of Rule 8.3.

Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with any of them (see Rules 8.1, 8.2 and 8.4).

 

Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel's website at www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the offer period commenced and when any offeror was first identified. You should contact the Panel's Market Surveillance Unit on +44 (0)20 7638 0129 if you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure.

 

Publication on a website

 

In accordance with Rule 26.1 of the Code, a copy of this announcement will be published on the GKN website (www.gkn.com) by no later than 12 noon on the business day following this announcement. The content of the website referred to in this announcement is not incorporated into and does not form part of this announcement.

 

Cautionary Statement - other matters

 

This announcement contains forward looking statements in relation to matters other than the agreement between GKN and Dana on the Proposed Transaction which are made in good faith based on the information available at the time of its approval. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a number of risks and uncertainties that are inherent in any forward looking statement which could cause actual results to differ materially from those currently anticipated.

 

Cautionary statement - Proposed Transaction

 

This announcement contains forward looking statements which are made in good faith based on the information available at the time of its publication. The forward-looking statements contained in this announcement may include statements about the expected effects of the Proposed Transaction on GKN, Dana, Dana plc and/or GKN Aerospace, the anticipated timing and benefits of the Proposed Transaction, GKN's and Dana's anticipated standalone financial results and all other statements in this document other than statements of historical facts. Without limitation, any statements preceded or followed by or that include the words "targets," "plans," "believes," "expects," "intends," "will," "likely," "may," "anticipates," "estimates," "projects," "should," "would," "positioned," "strategy," "future" or words, phrases or terms of similar substance or the negative thereof, are forward-looking statements. It is believed that the expectations reflected in these statements are reasonable but they are based upon a number of assumptions that are subject to change and they may be affected by a number of risks and uncertainties that are inherent in any forward looking statement which could cause actual results to differ materially from those currently anticipated. Such risks, uncertainties and assumptions include: the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement; the satisfaction of the conditions to the Proposed Transaction and other risks related to Completion and actions related thereto; GKN's and Dana's ability to complete the Proposed Transaction on the anticipated terms and schedule, including the ability to obtain shareholder or regulatory approvals of the Proposed Transaction; the ability of the parties to integrate successfully GKN Driveline with the business of Dana following the consummation of the Proposed Transaction and to realize the anticipated synergies (including any anticipated tax synergies) and other benefits expected from the Proposed Transaction; the effects of government regulation on GKN's or Dana's businesses; the risk that disruptions from the Proposed Transaction will harm GKN's or Dana's business; the effect of the announcement of the Proposed Transaction on the ability of GKN and Dana to retain customers and retain and hire key personnel and maintain relationships with their suppliers, and on their operating results and businesses generally; potential litigation in connection with the Proposed Transaction; and other factors detailed in GKN's Annual Report and Accounts 2016 and Dana's reports filed with the SEC, including its Annual Report on Form 10-K under the caption "Risk Factors". Nothing in this document should be regarded as a profit forecast. Forward-looking statements included herein are made as of the date hereof, and none of GKN, Dana or Dana plc undertakes, and each expressly disclaims, any obligation to update publicly such statements to reflect subsequent events or circumstances.

 

No offer or solicitation

 

This communication shall not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

 

Additional information and where to find it

 

This communication may be deemed to be solicitation material in respect of the Proposed Transaction. The Proposed Transaction will be submitted to a vote of Dana's stockholders and a vote of GKN's shareholders. In connection with the Proposed Transaction, it is intended that Dana plc will file with the SEC a registration statement on Form S-4, containing a prospectus with respect to Dana plc's ordinary shares to be issued in the Proposed Transaction (the "Prospectus") and a proxy statement for Dana's stockholders (the "Proxy Statement"), and Dana will mail the Proxy Statement to its stockholders and file other documents regarding the Proposed Transaction with the SEC. Further, it is intended that GKN will mail a circular to its shareholders ("the Circular") containing further details in relation to the Proposed Transaction and notice of the general meeting. DANA'S SECURITYHOLDERS AND GKN'S SHAREHOLDERS ARE URGED TO CAREFULLY READ ALL RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING THE PROSPECTUS AND THE PROXY STATEMENT, AND THE CIRCULAR WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PARTIES, THE PROPOSED TRANSACTION AND DANA PLC. Investors will be able to obtain copies of the Prospectus and the Proxy Statement as well as other filings containing information about Dana, without charge, at the SEC's website, http://www.sec.gov. Copies of documents filed with the SEC by GKN will be made available free of charge on GKN's Investor Relations Website. Copies of documents filed with the SEC by Dana or Dana plc will be made available free of charge on Dana's Investor Relations Website.

 

Participants in the solicitation

 

GKN and its directors and executive officers, and Dana and its directors and executive officers, may be deemed to be participants in the solicitation of proxies from the holders of Dana common stock in respect to the Proposed Transaction. Information about the directors and executive officers of GKN is set forth in GKN's Annual Report and Accounts 2016. Information about the directors and executive officers of Dana is set forth in the definitive proxy statement for Dana's 2017 Annual Meeting of Stockholders, which was filed with the SEC on March 16, 2017. Investors may obtain additional information regarding the interests of such participants by reading each of the Prospectus and the Proxy Statement and the Circular regarding the Proposed Transaction when it becomes available.



 

Appendix

 

Sources and bases:

 

1.1          The reference to GKN Driveline being valued at an EV of $6.2bn is based on the closing share price of Dana to close 9 March 2018 and is the sum of the following:

(A)          the value of the share capital that GKN's shareholders will receive of $3.620bn;

(B)          the value of the net cash consideration of $1.634bn; and

(C)          the value of GKN's IAS 19 pension deficit (net of deferred tax asset) of $966m (£697m converted as at 9 March 2018) to transfer to Dana plc.

1.2          The reference to the 2017 EV / EBITDA multiple of 7.6x is calculated by dividing the headline consideration for GKN Driveline of £4.5bn ($6.2bn converted as at 9 March 2018) as stated in the GKN Dana Announcement by the associated 2017 EBITDA of £588m.

1.3          The reference to Melrose's Revised Offer of 467p per GKN share is based on the terms of the Final Offer as set out in Melrose's announcement on 12 March 2018 and is calculated as the sum of:

(A)          the share consideration of 379.7p calculated as Melrose's Closing Price of 224.7p as at 9 March 2018 multiplied by the offer exchange ratio of 1.69;

(B)          the cash consideration of 81p; and

(C)          the GKN Final Dividend of 6.2p announced by the GKN Board on 27 February 2018.

1.1          The reference to Melrose's Revised Offer actually being 445.5p per share is calculated as the sum of:

(A)          share consideration of 364.5p calculated as Melrose's share price of 215.7p as at 12:00 on 12 March 2018 multiplied by the offer exchange ratio of 1.69; and

(B)          cash consideration of 81p.

1.2          The reference to the Closing Price per Melrose share on 9 March 2018 being 4% higher than that on the previous day is calculated as the percentage change between Melrose's share price of 224.7p as at close on 9 March 2018 and 216.0p as at close on 8 March 2018.

1.3          The reference to an implied EV / 2017 EBITDA multiple for Aerospace is based on:

(A)          Melrose's offer enterprise value of £10,171m, calculated as the sum of:

(i)           Melrose's offer equity value of £7,656m, calculated on the basis of:

(a)          the offer comprising 1.69 new Melrose shares and 81p in cash per GKN ordinary share;
(b)          the value of the 1.69 New Melrose Shares per GKN ordinary share being 364.5p, calculated based on Melrose's share price of 215.7p per share as at 12:00 on 12 March 2018;
(c)          1,718,442,520 GKN ordinary shares with voting rights in issue as at 9 March 2018, calculated as 1,726,103,630 GKN ordinary shares in issue less 7,661,110 GKN ordinary shares held by GKN in treasury as at 9 March 2018;

(ii)          GKN's equity to enterprise value adjustments of £2,515m, calculated as:

(a)          the GKN pre-tax IAS 19 pension deficit of £1,504m (as stated on page 23 of the announcement made by GKN on 27 February 2018 entitled "GKN 2017 Results Announcement" (the "GKN 2017 Preliminary Results Announcement")); plus
(b)          GKN net debt of £889m as stated on page 1 of the GKN 2017 Preliminary Results Announcement); plus
(c)          provision for minority interests of £39m as set out on page 23 of the GKN 2017 Preliminary Results Announcement; plus
(d)          £83m of aggregated fees and expenses expected to be incurred by GKN in connection with the Melrose offer, as disclosed on page 52 of the response circular sent by GKN to its shareholders on 15 February 2018;

(B)          the illustrative valuation of the Driveline segment of £4,611m, calculated as the sum of:

(i)           consideration for the Driveline segment of £3,794m which is based on the terms of the Proposed Transaction as stated in the announcement made by GKN on 9 March 2018 entitled "Proposed combination of GKN Driveline and Dana" (the "GKN Dana Announcement") and includes:

(a)          share consideration of $3,620m based on Dana's closing share price on 9 March 2018 of $27.14 multiplied by the number of new shares issued to GKN shareholders of 133.4m as stated in the GKN Dana Announcement; plus
(b)          cash consideration of $1,634m paid to GKN shareholders as stated on page 32 of the GKN Dana Announcement;
(c)          the sum of (i) and (ii) are divided by the USD / GBP exchange rate of 1.3850 on 9 March 2018; plus

(ii)          £818m of pre-tax IAS 19 pension deficit transferred in relation to the Proposed Transaction as set out on page 18 in the GKN Dana Announcement;

(C)          the aggregated fees and expenses expected to be incurred by GKN in connection with the Proposed Transaction of £292m, calculated as the sum of:

(i)           expected tax costs of approximately £230m in relation to the Proposed Transaction as set out on page 21 of the GKN Dana Announcement; plus

(ii)          expected pension leakage of approximately £62m in relation to the Proposed Transaction as set out on page 23 of the presentation to shareholders entitled 'Accelerating separation and maximising shareholder value' presented by GKN on 9 March 2018;

(D)          the reference to an illustrative valuation for the Powder Metallurgy segment is based on a 16.7x trading EV / EBIT multiple based on peers for Powder Metallurgy and calculated in accordance with the below:

(i)           EV is sourced from FactSet Europe Limited ("FactSet") and adjusted for pensions and minorities;

(ii)          the EBIT is sourced from FactSet as at 31 December 2017 or where not available on a reported basis, the latest EBIT prior to 31 December 2017;

(iii)        the 2017 EV / EBIT multiples are taken as at 9 March 2018;

(iv)         pensions and minorities are sourced from the last reported full year figures in accordance with FactSet, unless otherwise stated;

(v)          the 2017 EV / EBIT multiple is calculated by dividing the EV figure by the 2017 EBIT figure;

(vi)         Powder Metallurgy peers' 2017 EV / EBIT multiples are shown below and are as at 9 March 2018:

 

2017 EV / EBIT multiple

Hitachi Metals

11.2x

Castings

13.0x

Bodycote

14.4x

Arconic

15.8x

Kennametal

17.7x

Carpenter

24.0x

ATI

25.2x

OC Oerlikon

27.3x

Median

16.7x

 

(E)          the illustrative valuation for the Powder Metallurgy segment of £2,088m is based on a 16.7x trading 2017 EV / EBIT multiple (as set out in (D) above) multiplied by the 2017 trading profit of £125m as disclosed in the GKN 2017 Preliminary Results Announcement;

(F)          the illustrative valuation of GKN's central costs of £445.5m, which is a negative number, is calculated as:

(i)           unallocated central costs of £27m, calculated as £31m in corporate costs less the £4m charge for the one-off North America Aerospace balance sheet review (each as set out on page 11 of the GKN Preliminary Results Announcement); multiplied by

(ii)          16.5x, which is the trading profit multiple applied to the Aerospace division as set out in paragraph 5.51 of GKN's second response circular;

(G)          the implied Melrose offer EV for GKN Aerospace of £4,210m, calculated as:

(i)           the Melrose offer EV of £10,171m (as calculated above); less

(ii)          the illustrative valuation of the Driveline segment of £4,611m (as calculated above); plus

(iii)        the aggregated fees and expenses expected to be incurred by GKN in connection with the Proposed Transaction of £292m (as calculated above); less

(iv)         the illustrative valuation for the Powder Metallurgy segment of £2,088m (as calculated above); plus

(v)          the illustrative valuation of GKN's central costs of £445.5m (as calculated above);

(H)          the GKN Aerospace 2017 EBITDA of £438m, calculated as:

(i)           trading profit before depreciation and amortisation of £330m (as set out on page 26 of the GKN Preliminary Results Announcement); plus

(ii)          North American balance sheet review adjustments of £108m (as set out on page 26 of the GKN Preliminary Results Announcement); and

(I)           the implied Melrose offer 2017 EV / EBITDA for GKN Aerospace of 9.6x, calculated as:

(i)           Implied Melrose offer EV for GKN Aerospace of £4,210m (as calculated above); divided by

(ii)          GKN Aerospace 2017 EBITDA of £438m (as calculated above).

1.4          The reference to the average EV / LTM EBITDA multiple for precedent Aerospace transactions being 13.6x is based on the transactions set out in Appendix I (5.42) of the GKN's First Defence Circular released 15 February 2018.

1.5          The reference to 22x is calculated by dividing Melrose's share price of 215.7p, as per Bloomberg at 12:00 on 12 March 2018, by Melrose's 2017 underlying earnings per share of 9.8p, as stated in page 1 of Melrose's results announcement for the financial year ended 31 December 2017 dated 20 February 2018.

1.6          The reference to 14x is calculated by dividing the implied offer price for GKN of 445.5p, based on the Offer comprising 1.69 New Melrose Shares and 81p in cash per GKN Share, by GKN's 2017 management earnings per share of 31.7p excluding the North American Balance Sheet Review adjustments as stated in GKN's Preliminary Results Announcement for the year ended 31 December 2017.

 

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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Rejection of Melrose's revised and final offer - RNS