The UK engineering company GKN has struck a $6.1bn (£4.4bn) deal to merge its automotive business with the US firm Dana in an attempt to fend off a hostile takeover by Melrose.
GKN said on Friday it had agreed to combine its Driveline division with the Ohio-based maker of axles and driveshafts in a deal giving GKN shareholders a 47.25% stake in the enlarged, US-listed group.
The British company, whose customers include Fiat Chrysler and Volkswagen, will also receive $1.6bn in cash and $1bn of GKN’s pension deficit will be transferred to the combined business.
It deals a blow to Melrose, which has been pursuing a takeover of GKN since January when the engineering group spurned its unsolicited cash and shares bid that at the time valued GKN at £7.4bn.
Melrose responded by turning hostile and taking its offer directly to GKN’s shareholders, putting pressure on the engineer’s newly appointed chief executive, Anne Stevens.
The agreement with Dana could force the turnaround specialist to raise its bid.
Shares in FTSE 100-listed GKN were up more than 3%, at 435p, at about 4 pm in London after the announcement of the Dana deal. That is higher than the level of Melrose’s offer. According to UK rules, Melrose has until 19 March to improve its bid. Melrose declined to comment.
GKN’s shareholders will need to approve the merger, weighing its merits against a Melrose takeover.
The deal with Dana “provides significantly greater value for GKN’s shareholders than the Melrose offer”, GKN said. It added that the merger would give Driveline an enterprise value, which includes debt, of $6.1bn, based on Dana’s closing share price of $26.20 on Thursday.
Together with GKN’s plan to sell its powder metallurgy business, it would leave the company focused on aerospace, supplying parts to aircraft including the Black Hawk military helicopter and Eurofighter Typhoon.
If the deal is successful, Dana would become a UK public limited company, but remain headquartered in Ohio with its shares traded on the New York stock exchange. It would be led by James Kamsickas, Dana’s current chief executive.
The Driveline deal would also deliver annual synergies of $235m by the end of the third year after the merger, GKN added.