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UK's Melrose offers to acquire GKN

Electrical equipment maker Melrose Industries PLC on Jan. 17 announced the terms of its offer to acquire the entire share capital of GKN PLC.

Melrose is willing to give a consideration of 81 pence in cash and 1.49 Melrose shares per GKN share. The cash consideration will be funded via a debt facility, which will be used to refinance GKN's and Melrose's existing debts. The electrical equipment maker said that it first made the proposal to GKN on Jan. 8.

The offer represents a 29% premium to GKN's closing share price of 332.70 pence per share on Jan. 11, the final business day before the start of the offer period.

"The real value uplift will come from merging the interests of the two sets of shareholders and creating a business valued at approximately £11 billion today, of which GKN holders will own the majority, including Nortek, our U.S. business which is trading strongly. We are having discussions with shareholders about the potential for the merged business, which will be one of the largest companies in the U.K.," Melrose CEO Simon Peckham commented.

Under the deal, GKN shareholders will own approximately 57% of the merged entity.

Melrose added that the acquisition includes a mix and match facility and it intends to improve GKN's operations to exceed the aerospace equipment company's 10% trading margin target. It also said that if any dividend or return of capital is distributed after Jan. 17, Melrose has the right to reduce its offer consideration by a maximum of the amount of the dividend or return of capital.

Furthermore, in a letter dated Feb. 1 to GKN shareholders, Peckham said that Melrose plans to "unlock GKN's potential" by decluttering the business. If Melrose acquires GKN, the company intends to sell some of GKN's units under the Aerospace and Driveline divisions but only after it has improved these non-core businesses. As for GKN's core units, Melrose said it may consider disposing of the Powder Metallurgy sector after it is improved, noting that Melrose will return the net proceeds to GKN shareholders.

Meanwhile, for the rest of GKN's business units, Melrose said it will improve the company's overall performance in three to five years.