July 26, 2018 / 6:31 PM / a month ago

Britain's Melrose explores sales of GKN engineering businesses - sources

* Sale of powder metallurgy unit could start September

* Melrose mulling options for powertrain and wheels units

* Melrose won fierce battle for GKN earlier this year

By Ben Martin and Arno Schuetze

LONDON, July 26 (Reuters) - British turnaround firm Melrose is considering a series of sales of GKN businesses after clinching an 8 billion pound ($10.5 billion) hostile takeover of the aerospace and automotive parts supplier earlier this year, sources familiar with the matter told Reuters.

GKN’s new owner has hired Rothschild and Jefferies to manage a disposal of the engineer’s powder metallurgy division and is separately weighing options for its off-highway powertrain unit and wheels business, the sources said.

The powder metallurgy business, which manufactures components from powdered metal, is the biggest of the three businesses and could fetch around two billion pounds, which would represent about 10 times its core earnings, according to the sources. An auction is likely to kick off in September and is expected to attract interest from private equity firms.

GKN’s powertrain business supplies clutches, driveshafts and gearboxes for agricultural, mining and industrial vehicles and could be worth around 300 million pounds if Melrose decides to sell it, according to the sources. Its wheels unit, which also supplies off-highway vehicles, would fetch less.

The potential divestments come after Melrose delisted GKN from the London stock market in May following a closely-fought, acrimonious battle with the management of GKN, who had urged shareholders to reject the takeover.

London-listed Melrose narrowly clinched victory after 52.4 percent of GKN shareholders accepted its cash-and-shares offer in March.

As part of its defence against the Melrose bid, GKN drew up a plan to sell both the powder metallurgy and off-highway powertrain businesses, which it deemed non-core. GKN also struck a deal to merge its main automotive division with U.S. firm Dana, although that transaction collapsed once Melrose secured its takeover.

Powder metallurgy generated 1.17 billion pounds in revenues and 177 million pounds in core earnings in 2017, according to the defence document GKN published earlier this year. The powertrain unit had sales of 376 million pounds and 38 million pounds of earnings.

The battle between the two companies drew considerable political and media scrutiny in Britain given GKN’s heritage as one of the country’s oldest engineers, tracing its roots back more than 250 years. It supplied cannonballs to the British army during the Napoleonic Wars in the early nineteenth century and manufactured Spitfires during the Second World War.

Melrose was set up 15 years ago and focuses on turning around and then offloading industrial businesses, following a motto of “buy, improve, sell”.

The furore surrounding its bid for GKN prompted Melrose to make a series of legally binding commitments, including a pledge to remain headquartered in the UK for at least five years.

A spokesman for Melrose declined to comment. Rothschild, which advised Melrose on its purchase of GKN, declined to comment and Jefferies did not respond to a request for comment. ($1 = 0.7617 pounds) (Reporting by Ben Martin; Editing by Elaine Hardcastle)

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