Britain's GKN seeks to return 2.5 bln pounds over next three years

An employee works on a Volkswagen

The cash return pledge comes as GKN looks to fend off a hostile takeover bid from Melrose, with the turnaround specialist having recently turned to the blue-chip group's shareholders after being rejected by the company board.

That will include the sale of its Powder Metallurgy business which reports say could be valued at more than £2 billion.

However Melrose has argued that it could "deliver significantly greater benefits" to GKN's shareholders than the current management team. We have strong market positions and have delivered good growth, with management revenues a year ago of over £10bn.

Last month the FTSE 100-listed company rejected a £7.4bn bid from Melrose Industries PLC (LON:MRO), saying it "fundamentally undervalued" the firm.

The plan will consist of three segments: to deliver strategies for different product segments with "rigorous" capital allocation; to establish a culture based on greater accountability, capability, and pace; and to separate operations where it would maximise shareholder value.

Melrose swooped on GKN after profit warnings in October and November following problems at its U.S. aerospace division sent shares tumbling, which sparked a battle as GKN's board rejected its overtures.

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Both GKN and Melrose saw their shares rise following publication of the turnaround plan. "We expect to deliver GBP340 million of recurring annual cash benefit from the end of 2020 and are targeting a return of up to GBP2.5 billion to our shareholders over the next three years, with a significant part expected to come from divestments executed within the first 12 -18 months".

In response, Melrose said GKN's document was "long on adjectives and promises but desperately short on detail".

GKN said a significant amount of the £2.5bn cash return - equating to just under £1.50 per existing share - would come from selling off parts of the group, including the powder metallurgy business.

"Melrose has already added £1.3bn to the value of GKN and proposes a further £1.4bn on Day One", said the spokeswoman.

GKN makes parts for the Boeing 737 jet, the Black Hawk helicopter and components for Volkswagen and Ford cars.

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