Deadline looms for GKN bid battle

But this week the line is set to finally be drawn under the proposed hostile takeover of engineering firm GKN when its investors vote on whether they accept Melrose's offer.

Since turnaround specialist Melrose first revealed its hope to acquire GKN, the proposed deal has become complicated, with Melrose regularly upping the ante by increasing its bid for the firm and offering to inject up to £1 billion into the GKN pension scheme.

Melrose has been facing calls from MPs, unions and even GKN customers to clarify its intentions since its interest first surfaced, while GKN itself has regularly openly criticised Melrose's takeover bid and long-term intentions.

GKN, which as a site in Telford, makes parts for planemakers Airbus and Boeing, as well as parts for Volkswagen and Ford cars.

It is one of the UK's largest industrial firms, employing more than 59,000 people globally – 6,000 of them in the UK.

Melrose specialises in buying up industrial companies it believes are undervalued and restructuring them before selling them on.

Melrose claims it has "the best team to realise GKN's full potential".

It has also called GKN's plan to merge its automotive business with US rival Dana, "hasty and ill-thought-through" and said GKN had "substantially reduced" annual contributions to its pension schemes.

But in a statement GKN boss Anne Stevens rejected the claims.

"In scale and nature, GKN is completely different from any business Melrose has ever bought," she said.

"Melrose lacks the knowledge and experience to manage GKN successfully and has absolutely no plan for the business."

She said the firm's offer for GKN did "not come close" to reflecting its true value and said shareholders should reject it.

But Simon Peckham, chief executive of Melrose, said it boils down to GKN underperforming for ages and Melrose would be much better at running it. Melrose, with its record of buying struggling businesses, taking up to five years to improve them, then selling them for a big profit, is evidence of this, he claims.

"It's not right that a management team, which accepts it is not doing a good job – and revolutionised how it looks at its business since we turned up – has the opportunity to bar someone else who says 'We can do a better job'," he said.

Mr Peckham insists that Melrose always prefers to do deals in private on terms that both sides agree to. Any "hostility" is from GKN's management towards its own shareholders, he said. His case is that by fighting Melrose they are reducing their shareholders' chances of owning a better business with different bosses.

"Some think we buy GKN and get handed a £285 million cheque. It is not true."

To earn that amount, he counters, Melrose would have to "do the same amount of value creation in two years as GKN has done in 250 years – we'd have to have to add £6bn."

Mr Peckham said he will get "nothing" until GKN's market value – currently £7.5bn – has increased by £1bn. Adding £6bn in two years is a tough target, but Melrose's approach has sparked a 25 per cent surge in GKN's share price.

Recently Airbus, GKN's biggest customer, said it would be "practically impossible" to give the business new work if Melrose took over.

"I can't tell you we weren't disappointed," said Mr Peckham. The Melrose chief hopes to meet with Airbus to "alleviate their concerns" and emphasise that his company is a long-term R&D investor.

Melrose's track record speaks for itself, he said, pointing to it sinking almost £500m into the other companies in its portfolio over the past five years. "Our point is that while we might not own a company forever, while we do own it we treat it as if we were going to own it forever," he adds.

He dismisses as "utter rubbish" suggestions Melrose is over-egging its past investment levels.

Commenting on GKN's management, he said: "I don't think anyone – even GKN's management – will argue that the company has been well stewarded."

But how would Melrose do it differently? He won't be drawn beyond this, saying Melrose will "sit down with individual business and work out what that plan is, we can't pre-judge it.

"We want to invest to improve productivity. Automation and mechanisation is part of that.

"You can try to protect businesses and say, 'We're going to prevent the world's effects from getting to them' but then all that happens is you lose the businesses. I'm not trying to be alarmist but part of being a responsible owner is you run it properly."

Mr Peckham added GKN is "very capable of going back to being where it should be if it had been run properly", but it fundamentally needs a change of culture.

The battle over GKN has been going on for more than two months, but will be concluded soon with shareholders having until Thursday to vote on the bid from Melrose.

As the Melrose-GKN takeover battle has entered the last few days, the two companies have been throwing everything at winning over investors.

Some GKN shareholders have already said they plan to reject the offer, arguing that the price on offer undervalues the engineering firm.

The Pensions Regulator had also warned the deal could weaken GKN's ability to meet its pension obligations.

It appears the final outcome is balanced and too close to call.