The initiative will be headed up by current interim boss Anne Stevens, who has been appointed the firm’s new chief executive with immediate effect.
On the back of this news, GKN’s shares hit their highest level in well over a decade. Shares opened more than 20% higher at 396p and continued rising Friday morning, hitting 420p, the highest its shares have traded since August 2007.
The automotive and aerospace parts manufacturer confirmed in an update on Friday that it had received a “preliminary and unsolicited proposal from Melrose” on 8 January worth 405p per share, a 24% premium to its closing price on 5 January of 326p.
Prospective bidder Melrose is a turnaround specialist, picking up floundering firms on the cheap with the intention of improving them and selling them off at a higher price.
Its board, in tandem with financial advisers Gleacher Shacklock, JP Morgan Cazenove and UBS, “unanimously rejected” the proposal, which it deemed “entirely opportunistic” and to “fundamentally undervalue” the company and its prospects.
It added that “the proposal would materially dilute the exposure of GKN shareholders to the meaningful upside opportunities that the Board believes are present within the company”.
In accordance with the UK’s takeover rules, Melrose has until 5.00pm on 9 February 2018 to counter with a new offer for GKN.
Speculation has been ongoing for a while as to whether the firm would be a takeover target or decide to break itself up.
The firm itself undertook a “wide-ranging review” of its business last year, as profit margins and cash generation were stuck “below expectations”.
Within Friday’s announcement, GKN alluded that fourth quarter trading was “in line with expectations” and said it still expects the full year’s profit before tax to be “slightly ahead” of last year’s figure of £678m.
As part of its two-year revamp, aptly titled “Project Boost,” it will differentiate product segments into core or non-core, which will each have different capital expenditure targets and expectations for growth, margin improvement, cash generation and return on investment.
By separating its aerospace and automotive units “the Board believes that shareholder value will be maximised by setting distinct strategic, operational and financial objectives for the businesses, with clear focus, accountability and better aligned incentive plans,” GKN said.
On the appointment of Stevens as new chief executive, the firm’s chairman Mike Turner said she “has the track record to transform GKN,” pointing to her “successful turnaround” of The Ford Motor Company’s Mexico, Canada and South America businesses and senior roles at Carpenter Technology and Lockheed Martin.
“Her operational and strategic skills are ideally suited to GKN and the Board is very impressed with the contribution she has made so far in setting out plans for a significant improvement in the Group’s performance,” he added.