February 9, 2018 / 12:52 PM / 10 days ago

Britain's GKN says Melrose offer needs more time for U.S. scrutiny

LONDON (Reuters) - British engineering group GKN (GKN.L) told shareholders considering a 7 billion pound ($9.65 billion) hostile offer from Melrose Industries (MRON.L) that any deal was unlikely to secure U.S. approval by the current late April deadline.

GKN, a supplier of components to military aircraft that opposes the bid, said it would agree to a deadline extension if Melrose requested one from Britain’s Takeover Panel.

The British turnaround specialist, which launched its unsolicited offer last month after two GKN profit warnings, said it did not expect such an extension would be necessary.

Melrose has until late April to secure approval from relevant regulators, which in this case includes the Committee on Foreign Investment in the United States (CFIUS), for the share-and-cash deal that offers GKN investors 57 percent of the combined firm.

Under British rules, GKN must agree to an extension before the two firms and the Takeover Panel work out a new timetable.

GKN’s board, which has called the Melrose offer “derisory”, said it would agree an extension so shareholders could make a “fully informed decision”.

The engineering firm said a review by CFIUS could stretch out because of the “significance to U.S. national security” of U.S. defense programs in which it was involved. It could also take longer because the bid was hostile, GKN said.

“Having taken advice from a leading CFIUS law firm, GKN does not agree with Melrose’s assertion that it will be able to obtain CFIUS approval within the parameters permitted by the City Code timetable,” GKN said, referring to Britain’s merger and acquisition code.

Melrose, which focuses on industrial firms, made its unsolicited offer for GKN in January after the aerospace and automotive parts business was left vulnerable by profit warnings in October and November, causing sharp falls in GKN’s shares.

    GKN, led by new chief executive Anne Stevens, rejected Melrose’s approach and outlined its own turnaround plan that would see it split into separate aerospace and car parts firms.

    Melrose responded with a firm offer, effectively making it a hostile bid that appealed directly to GKN’s shareholders.

    Melrose published its formal offer document on Feb. 1, giving GKN shareholders 60 days, or until April 2, to decide. Melrose has a further 21 days secure regulatory clearance.

    GKN must detail its first defense against the bid by Feb. 15, while Melrose has until March 19 to improve its offer should it wish to sweeten the terms.

    GKN said Melrose could decide to waive CFIUS approval as a condition of a deal but said investors accepting the offer would face “uncertainty” about any conditions CFIUS could impose.

    Melrose said it welcomed GKN’s flexibility on any extension but said it still expected to achieve any approval required within the existing timeline.

    Reporting by Ben Martin in London and Esha Vaish in Bengaluru; Editing by Elaine Hardcastle and Edmund Blair

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