EXTRA: GKN Rejects Melrose Proposal, Launches Improvement Programme

GKN - Offer rejected, Automotive and Aerospace to separate

The offer represented a price of 405p per share, comprising 80% in new Melrose shares and 20% in cash.

Shares in GKN, which makes wing tips for Airbus planes and parts for Porsche cars, jumped more than a quarter to 423p.

Instead, the firm confirmed in a statement on Friday it had chose to split out the automotive and aerospace into two separate companies as part of a two-year "transformation programme", ending months of speculation over the firm's future. GKN shareholders would have ended up with a 57% stake in the combined business.

"In addition, the Proposal would materially dilute the exposure of GKN shareholders to the meaningful upside opportunities that the Board believes are present within the Company".

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. Takeover rules mean it must make a firm offer by 9 February or walk away for six months.

The timeframe has not be specified but will "maximise the economic benefits and minimise the costs", says GKN.

GKN, which used to be known as Guest, Keen and Nettlefolds and traces its history back to 1759, has struggled in recent years and its profit warning came after a downturn in its USA aerospace business.

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'The separation of the automotive and aerospace units has been on the cards for years, with little obvious cross over between the two businesses, ' he said.

"Historically, the pension deficit has held the group together, but with the sprawling footprint likely to have contributed to recent profit warnings, the reasons for divorce now seem to outweigh the costs of splitting", he said.

Kevin Cummings had originally been due to take up the role on 1 January, but in November the company announced it was looking for "alternative leadership".

Stevens, the former Chairman and CEO of USA alloys manufacturer Carpenter Technology Corp, became interim chief executive of the company earlier in January following the retirement of Nigel Stein.

The takeover bid, made by manufacturing turnaround firm, Melrose, valued the company at £7bn.

A brief trading statement accompanying the announcement confirmed that the group continues to expect profit before tax for the year to be slightly ahead of last year's £678m.

"Operational challenges" at its North America-based aerospace business were one factor behind a profit warning in October.

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