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UK's Melrose ups takeover bid after GKN agrees deal with Dana

Electrical equipment maker Melrose Industries PLC on March 12 issued an increased and final offer for U.K. engineering business GKN PLC after the latter agreed to sell its driveline division to Dana Inc., maker of axles and driveshafts.

In response, GKN said in a separate news release that its board is evaluating Melrose's revised offer, and a further announcement will be made in due course.

Under the revised terms delivered to GKN and its shareholders via a letter from Melrose Executive Chairman Christopher Miller, GKN shareholders will receive 81 pence per share in cash and 1.69 new Melrose shares for each GKN share. The final offer values each GKN share at £4.67, totaling to £8.1 billion, which is a premium of nearly 43% to the closing GKN share price of £3.26 on Jan. 5, Melrose said.

The new offer values the Melrose-GKN combination to £10 billion, the turnaround specialist said in its offer. On Jan. 18, Melrose offered to acquire the entire share capital of GKN, with the intention to sell some of GKN's units under the aerospace and driveline divisions as well as its powder metallurgy business, for 81 pence in cash and 1.49 Melrose shares per GKN share, or £7.4 billion.

Miller said in his letter to GKN shareholders that the Dana proposal is a "hasty and ill-thought-through transaction." His reasons include that selling the driveline division to Dana without any prior improvement to the business is not ideal. The transaction also forces GKN shareholders to accept shares in a foreign listed company outside the U.K., giving them no alternative but to sell the shares. Additionally, it forces shareholders to pay taxes on receipt of Dana shares without any cash payment to fund it.

Melrose added that the company has already received clearance from its shareholders and the U.S., Canadian and European anti-trust. All remaining regulatory approval is underway as well.

The London-based manufacturer gave GKN and its shareholders until March 29 at 1 p.m. to accept its offer. If the company receives sufficient acceptances from GKN by that date, the offer will be declared wholly unconditional on or before April 19.

In a March 9 deal with Dana, GKN agreed to merge its driveline business with Dana in order to establish Dana PLC, a company that will specialize in driveline systems. Dana PLC will be listed on the New York Stock Exchange and based in Maumee, Ohio.

The deal, worth about $6.1 billion in total, includes $1.6 billion in cash proceeds to GKN and the assumption of about $1 billion of net pension liabilities. It also includes the issue of 133 million new Dana PLC shares, valued at approximately $3.5 billion, to GKN shareholders. Dana shareholders will own around 52.75% of the merged entity while GKN holders will own 47.25%.

Both GKN CEO Anne Stevens and GKN nonexecutive director Richard Parry-Jones will serve as nonexecutive directors on Dana PLC's board. Joining them from Dana Inc. are nonexecutive chairman of the board, Keith Wandell, and President and CEO James Kamsickas. Wandell will serve as nonexecutive chairman at the new company, while Kamsickas will become CEO, president and a director.