GKN takeover offer from Melrose

[Bouleversee]

Offer extended to 29 March. Only 5.76% acceptances received. I'm surprised it's so low. No increased terms offered, however, so I wonder what will happen now.

https://www.investegate.co.uk/melrose-i ... es%20Alert

There was also this one regarding GKN's proposed tie up with Dana:

https://www.investegate.co.uk/gkn-plc/g ... LC%20Alert

What a muddle.

[Alaric]

No increased terms offered, however, so I wonder what will happen now.

They have at least clarified what might happen to the Mix and Match.

The Mix and Match Facility remains open and Eligible GKN Shareholders may elect, subject to offsetting elections, to vary the proportion in which they receive New Melrose Shares and cash in respect of their GKN Shares. Melrose reserves the right to close the Mix and Match facility at 1.00 p.m. (London time) on 29 March 2018 without further notice.

The question comes as to whether the 94% where they don't have acceptances is because holders haven't bothered to reply or have given instructions not to accept.

[Bouleversee]

No increased terms offered, however, so I wonder what will happen now.

They have at least clarified what might happen to the Mix and Match.

The Mix and Match Facility remains open and Eligible GKN Shareholders may elect, subject to offsetting elections, to vary the proportion in which they receive New Melrose Shares and cash in respect of their GKN Shares. Melrose reserves the right to close the Mix and Match facility at 1.00 p.m. (London time) on 29 March 2018 without further notice.

The question comes as to whether the 94% where they don't have acceptances is because holders haven't bothered to reply or have given instructions not to accept.

My guess would be the latter, like me and my sprogs, thinking that if, as GKN said, it undervalued the company, the offer might be raised a bit more. However, it wouldn't surprise me if Melrose threw in the towel. Do I really want shares in Dana, I ask myself? I haven't done the maths yet but I think the answer will probably be in the negative, which is perhaps what Melrose is banking on. I wonder how many shares they already own, having bought in the market. I expect there is an alert somewhere in the many dozens I have received that states that but not able to search for it at the moment.

[Alaric]

Do I really want shares in Dana, I ask myself? I haven't done the maths yet but I think the answer will probably be in the negative, which is perhaps what Melrose is banking on.

They might offer a mix and match in Dana. If they offer a selling option, those holding in taxed accounts would have to work through the CGT treatment, but that applies anyway if you end up with shares in two companies where previously there was only one.

[Bouleversee]

I doubt it, especially since they are giving cash to GKN. It's difficult to evaluate the offer and I will be interesting to see what the weekend press has to say about it.

In the meantime, Melrose has put out a statement of their own views on GKN's plans:

https://www.investegate.co.uk/melrose-i ... es%20Alert

[Gengulphus]

The question comes as to whether the 94% where they don't have acceptances is because holders haven't bothered to reply or have given instructions not to accept.

Not really, at least as far as the company and its registrar are concerned. In such takeovers, the response form the registrar supplies is only for acceptances, so the only way to not accept is simply not to send a filled-in form back to them. I.e. as far as they are concerned, every non-acceptance is a failure to reply.

As an individual shareholder, you only see that if you've got a registered shareholding - i.e. if your holding is certificated or (possibly) held in your own CREST account (*). For the much more usual nominee holdings, your broker's nominee company is the registered shareholder, almost always for the 'pooled' holdings of many clients (**), and it gets the form (or an electronic equivalent) from the company's registrar, not you. The broker then has to collect responses from its clients, collate them and respond accordingly - the form does allow acceptance for only a specified number of shares in a registered shareholding, so they can cope with some clients accepting and others not. It's entirely possible that the options that the broker offers its clients include giving instructions to accept and giving instructions not to accept, and they've clearly also got to cater for the possibility that clients simply fail to reply. But as far as their response to the registrar is concerned, they only have the "reply to accept" and "don't reply" options for any particular share, so two of those three possible client options will always be treated identically. It's only any further interaction between the broker and the client that might be affected by the difference between those two - e.g. the broker might send a reminder to clients who haven't replied, but not to those who have replied to say "don't accept".

I should also warn that the broker won't necessarily interpret a failure to reply as not accepting the offer. For example, I have seen a set of broker terms & conditions that say explicitly that if the client fails to respond to a request for instructions about whether to accept a takeover offer, the broker will accept if the offer is recommended by the company's directors and not accept if it isn't.

The point of saying all that is that I am not saying that people can blithely ignore "don't accept" options offered by their broker in favour of simply not replying to the broker at all. If your broker asks for a response from you, pay attention to their request and what it says - don't assume that you know better!

What I am saying is that when interpreting statements made by the company, one needs to understand that as far as the company and its registrar are concerned, there are only the two possibilities 'replied to accept' and 'did not reply'. It does involve having two subtly different mental models of what is going on and distinguishing carefully between them, one for company/investor communications and the other for broker/investor communications. Which is a bit of a nuisance, but such is life...

(*) If held in your own CREST account, it will generally be with the broker acting as 'sponsor' for the account and able to issue instructions about it on your behalf - and the registrar may well only accept instructions issued on the CREST electronic system with regard to such holdings, not those on a posted acceptance form. If so, communication will need to be via the broker and so will be similar to that for a nominee shareholding, not a certificated one.

(**) I have known an exception where a broker's nominee company had separate 'individually designated' registered shareholding for each client, but only one, and they decided to shift to a 'pooled' system and then to exit the low-cost online business a few years later - I strongly suspect they decided they couldn't make it pay and that the use of an 'individually designated' system contributed to that.

Gengulphus

[Bouleversee]

Melrose have now increased their offer to 81p cash and 1.69 New Melrose Shares for each GKN share held.
https://www.investegate.co.uk/melrose-i ... es%20Alert

And GKN have said they are evaluating this and advised shareholders not to accept in the meantime:

https://www.investegate.co.uk/gkn-plc/g ... LC%20Alert

having previously said:


https://www.investegate.co.uk/gkn-plc/g ... LC%20Alert

And so it goes on. Acceptance deadline is sill 29 March.

[Gengulphus]

Melrose have now increased their offer to 81p cash and 1.69 New Melrose Shares for each GKN share held.
https://www.investegate.co.uk/melrose-i ... es%20Alert

And GKN have said they are evaluating this and advised shareholders not to accept in the meantime:

https://www.investegate.co.uk/gkn-plc/g ... LC%20Alert

having previously said:

https://www.investegate.co.uk/gkn-plc/g ... LC%20Alert

And so it goes on. Acceptance deadline is sill 29 March.

There is actually a significant point about the new offer that you may have missed: Melrose describe it as an "INCREASED AND FINAL OFFER", the word "FINAL" making it a commitment not to raise it any further - they'll have the Takeover Panel down on them like a ton of bricks if they try. (A bullet point near the start of their announcement expands on that by saying "Offer will not be increased under any circumstances", but I don't believe it's strictly necessary - I think it's just expanding on the meaning of describing the offer as final to try to forestall as many "but will you increase the offer if X happens?" queries as possible.)

What this does is start to place a limit on how long the process will go on. In particular, if any competing offer emerges, Melrose won't be free to play their part in a bidding war. It's possible that a better offer will emerge from an as-yet-unknown bidder, of course, but that's basically as far as a bidding war can go. (Unless of course one develops between multiple as-yet-unknown bidders, but that's really very unlikely, and if such bidders were to emerge at this fairly late stage, I would expect the Takeover Panel to encourage them to settle it quickly - and if necessary impose a timetable on them to do so.)

Melrose have also done another bit of limiting how long the process will go on: their announcement also states "The deadline for acceptances of the Final Offer (being 1.00 p.m. on Thursday 29 March 2018) will not be extended, save as set out below(1). If sufficient acceptances in respect of the Offer are not received by Melrose on or prior to such time in order to satisfy the Acceptance Condition, then the Offer will lapse." The footnote is about reserving the right to extend it, but only for the purpose of getting a particular regulatory approval if it's delayed and with GKN's consent, and I assume that the statement doesn't override the Takeover Code's requirement to extend the offer for at least 14 days if the offer does become unconditional as regards acceptances. But basically, Melrose are no longer either free to prolong the process by making an improved offer or by extending the current one.

You might wonder why Melrose are limiting their future freedom of action in this way. I think there are probably three reasons: firstly, keeping the process going will be a continuing drain on their resources; secondly, having as firm a deadline as possible will place pressure on shareholders who are in a position to significantly affect the outcome to get on with it and accept if they do want it to go through; thirdly, all parties involved (which might or might not include ones not yet publicly known) are probably starting to come under pressure from the Takeover Panel to get on with it, and this will relieve any such pressure on Melrose itself and focus it on any other parties who have been biding their time...

In short, your "And so it goes on" still has some time to play out, but there are starting to be signs of a limit to how long.

Gengulphus

[Bouleversee]

Thanks for that, Geng. I had actually taken on board the deadlines and final offer. At least there is some clarity in that. The Sunday Times seems to think Melrose will win the day. It will be interesting to see whether GKN now, having evaluated the upped offer, decide to throw in the towel and tell shareholders to accept. Perhaps major shareholders have told Melrose that if they increased the offer to the levels now announced they would back them so Melrose can feel reasonably confident of victory. They might also consider that a lot of money has been wasted over the Dana negotiations which will presumably not be going ahead if Melrose get sufficient acceptances.

I note that Melrose's s.p. has dropped a lot more that than of GKN this morning.

[Bouleversee]

We now have GKN's response to the increased offer. It's a "no thanks".

https://www.investegate.co.uk/gkn-plc/g ... LC%20Alert

[Bouleversee]

And it didn't do much for the share price which was 445.70 at 8.15 a.m. and ended the day at 423.60.

[SwissPaul]

Airbus aren't giving Melrose a vote of confidence according to todays FT' Practically impossible to work with GKN if Melrose take over - yikes

[Bouleversee]

And on the other hand I have now read that Dana went bust some years ago and offloaded responsibility for pensions to the protection scheme so pensioners ended up with lower pensions which won't go down well with trustees or the govt. I should imagine. What a mess it all is. Whoever it was who said he had sold at the outset knew what he was doing. I would do the same but the s.p. has now fallen further (to less than the offer is worth, I have read) so still sitting on my hands. I don't feel as enthusiastic as I did about Melrose taking over. Something tells me it's not going to happen but what do I know?

[Bouleversee]

The latest announcement re GKN:

https://www.investegate.co.uk/gkn-plc/g ... LC%20Alert

Well done, those directors!

[Bouleversee]

The saga continues; GKN's latest rebuttal statement:

https://www.investegate.co.uk/gkn-plc/g ... LC%20Alert

[Bouleversee]

Interesting statement from Melrose:

https://www.investegate.co.uk/melrose-i ... es%20Alert

[tjh290633]

Melrose have won, see https://www.theguardian.com/business/20 ... e-takeover

52.43% of shareholders accepted.

TJH

[Gengulphus]

Melrose have won, see https://www.theguardian.com/business/20 ... e-takeover

52.43% of shareholders accepted.

And as so often happens, the financial journalists can't get it right - quoting from the start of that link:

"GKN has lost its fight to retain independence in what one MP termed a “bleak day for British industry”, after the 259-year-old engineering firm’s shareholders voted narrowly in favour of an £8bn hostile takeover by the turnaround specialist Melrose.
...
Christopher Miller, the chairman of Melrose, said he was “delighted and grateful” after the vote, in which 52.4% of investors back a deal."

No, as TJH says, 52.43% of shareholders have accepted the offer. There hasn't been a vote, there almost certainly won't be a vote, and if there had been a vote (which there would have been if the takeover had been attempted by a scheme of arrangement rather than a traditional takeover offer), a 52.43% majority of shareholders who voted would have fallen well short of the 75% required to pass a special resolution! (Whether 52.43% of all shareholders, i.e. both those who voted and those who didn't, would have been enough would have depended on the split of the remaining 47.57% between those voting against and those not voting - but that's moot, because there's no vote involved.)

For the facts, unfiltered through poor journalistic paraphrasing, see https://www.investegate.co.uk/melrose-i ... 00104810J/ (Melrose's announcement of the acceptance level so far) and https://www.investegate.co.uk/gkn-plc-- ... 46334909J/ (GKN directors say they still think the offer undervalues GKN but they now recommend accepting).

Important details from Melrose's announcement:

"As at 1.00 p.m. today Melrose had received valid acceptances representing approximately 52.43 per cent. of the voting rights of GKN.

Accordingly, Melrose is pleased to announce that the Acceptance Condition has today been satisfied and that its Offer has therefore become unconditional as to acceptances."

I.e. it's not fully unconditional yet. I think some regulatory conditions remain to be satisfied, but I haven't checked - nor am I going to...

"The Offer will remain open for acceptance until further notice, and not less than 14 calendar days' notice will be given in respect of the closure of the Offer. Melrose expects that the Offer will become wholly unconditional by no later than 19 April 2018."

I.e. those who haven't accepted yet haven't missed the boat - and will get at least 14 days warning when it is about to set sail, which as I said earlier in this thread, is a requirement of the Takeover Code. And that warning hasn't yet been given, which I don't believe is such a requirement, but it is normal - basically, shareholders accepting the offer is the cheapest way for Melrose to get their hands on the outstanding shares, so it's in Melrose's interest to keep the offer open.

Also, they are expecting the remaining conditions to be satisfied.

"The Mix and Match Facility will be closed for further acceptances with effect from 1.00 p.m. on 16 April 2018."

Which answers the question earlier in the thread about whether the Mix and Match Facility remains open - it does for the moment, but the clock is now ticking on it... I would guess that the deadline is chosen to give the company time to work out the exact way Mix and Match elections are satisfied in time to be able to announce it along with the offer becoming fully unconditional (they're probably fairly certain that "by no later than 19 April 2018" will turn out to be on 19 April 2018).

Gengulphus

[Bouleversee]

Thanks for all that, Geng.

Aren't the GKN directors only recommending acceptance if/when it becomes wholly unconditional, rather than now, however, and can we assume that they will wait till then? Whatever, I'm going to accept before then unless the sp rockets in the meantime which is perhaps not very likely.


"Accordingly, the Board now recommends that, in the event that the Offer is declared wholly unconditional by Melrose, shareholders accept the Offer, as the GKN directors intend to do in respect of their own beneficial holdings. Gleacher Shacklock and UBS Limited are providing independent financial advice to the Board for the purposes of Rule 3 of the City Code."

Edit: I've just looked at both s.ps. and see that GKN's went up 7.38% today whereas that of Melrose was only up 0.35%. I haven't done the sums yet (including on the options) but would be interested to know whether other holders think Melrose can do a good turnaround job on GKN or whether they might have bitten off more than they can chew. I wonder whether they will also do a deal with Dana for the automotive division.

[moorfield]

Very nearly the same as the Brexit result. Let's hope it will be a Soft Takeover.