Melrose Industries Share Discussion Threads

[yertiz] 20/3/2018 09:55

Almost seems there are points to be made, pride at stake and egos requiring massaging by Melrose's BoD to win the bid at(almost)any cost. Either they still see an immense amount of unrealized potential within GKN and with what they can bring to the table to unleash those profits, or those egos are starting to run the show.

FWIW I am now a little concerned this is turning out to be a more costly exercise in the takeover game and MRO's shareholders are not going to benefit nearly as much as we had first hoped. I don't deny the BoD deserve their £ multimillion pay days for the jobs they have done with FKI, Elster and now Nortek, they've more than quadrupled my investment in that time, but I'm now sensing a change in stance and it may not be for the right reasons. I hope I'm wrong - 9 days to go before we know which way this bid takes, starting to think the bid failing will be a better option?

[grahamburn] 20/3/2018 09:50

Thoroughly well-researched and balanced lengthy article on the issues facing the two GKN pension funds and the effects of both potential outcomes to the bid.



I was, however, struck by the concluding two paragraphs which contained some information which has not emerged to date, so far as I am aware; namely:

The trustees appear to be favouring GKN. That could change in the next few days if they find the sweetened Melrose terms acceptable and tie it in to binding commitments. They need to be careful to be strictly neutral, evaluating each on its own merits. They shouldn’t be seen as over-cosy with the company, not least because they may have to build a relationship with Melrose executives in a few short weeks — if it wins.

It hasn’t helped the image of impartiality that GKN appoints and pays the chairmen of both pension schemes, nor that the chairmen are both ex-employees, nor that company-appointed trustees are in the majority. It is also unfortunate that Mercer, whatever its conflict-of-interest safeguards, has been allowed to advise both the company and the trustees. Who thought that was a good idea? The trustees have an unenviable task in having to weigh up complex proposals with many moving parts whilst armed with very limited weapons and only the foggiest of crystal balls. But the maxim “Always keep a-hold of nurse, for fear of finding something worse”, is not always the basis for good pension fund governance.

[gettingrichslow] 19/3/2018 23:19

Yes Meanwhile, that's a very good point. In fact, all in all, I think I'd almost rather they did a couple more 'smaller than GKN' jobs through rights issues. Feels less risky. And they've got so much experience in it now, that one would have thought they should be able to find really good targets and extract even more value from them than they have in the recent past. In 10 days from now that could be the new plan...

[meanwhile] 19/3/2018 23:02

I agree, getting, I think there are better deals than GKN. We might also find that MRO go back to raising cash for a purchase via a Rights Issue. This has always been good for existing holders.

[gettingrichslow] 19/3/2018 22:19

Bscuit, I'm not so sure about that because I think this whole saga may have woken the City up to Melrose and the scale of their ambition, so if this doesn't go through I think the share price will stay strong and may even go up significantly. Bearing in mind it has been at 261p (that's from memory) a few months ago. If this doesn't go through I wouldn't be at all surprised if MRO finds a deal as good or better within say 6-9 months, and almost certainly a less contentious one.

[bscuit] 19/3/2018 22:11

And the impact on the MRO price if it fails? Went up on possibility of deal so lose it suggests a drop. Win and the GKN pension deficit looks expensive albeit shared between the holders of the enlarged group.

[topvest] 19/3/2018 21:25

I think MRO could well lose. Not the end of the day if they do. If GKN holders are that stupid then they deserve to do poorly with their investment. Vote for simplicity and action with Melrose or complexity and more of the same with GKN management. That's what it comes down to.

[meanwhile] 19/3/2018 20:25

getting,
How big a fall do you imagine? It would still be a FTSE 100 company.
It was at 320p when floundering before the bid. It wasn’t exactly clapped out or in any trouble.

[gettingrichslow] 19/3/2018 18:04

Meanwhile, re: your point about more than 50% of voters voting for GKN indicating support. I see what you are saying but consider this...Assume the vote is 51% for GKN, 49% for MRO...That's then almost half of all share holders who think their company is better off in the hands of a different and 'untested at this level' team...Now imagine even just 20% of them decide to sell...That's almost 10% of all the shares being sold...And who exactly would be queuing up to buy?? I reckon that would lead to a significant price drop.

[meanwhile] 19/3/2018 17:31

gettingrichslow,

I never imply things.
To be honest I haven't a clue what's going on. I just indicated a possible investment.

[meanwhile] 19/3/2018 17:26

Steeplejack,

I'm not convinced the GKN price would fall markedly if the bid fails. In this case, more than 50% of shareholders will have voted for GKN to remain. This indicates current holder support. There is the Dana deal, project boost, where the board now have an excuse for being more brutal and the promise of a future, more favoured, buyer for the whole.

[gettingrichslow] 19/3/2018 17:06

Meanwhile, your numbers are showing that GKN's price will fall if the bid 'fails'. So there is a risk in the 'buying the GKN' option in your example. But it doesn't necessarily follow (which I think you may be implying but I'm not totally sure you were) that the MRO price will fall if the bid succeeds. Conversely I think GKN and MRO holders will be better off it succeeds. GKN more so than MRO initially probably. Surprisingly to some perhaps, I think if it fails we will see a reasonable rise in MRO too because I think there is an 'uncertainty' thing in play here and once this vote has concluded there will at least be clarity of outcome.

[minerve] 19/3/2018 16:12

MEANWHILE

But your maths actually show that to the arbitrage/hedge funds there is an attractive opportunity for money to be made. All they need to do is buy GKN and vote for the takeover. The market makers/algorithms just make money on volume - they don't care - so the spread under Melrose may be deliberate (to attract) and actually increases the chances of it succeeding, no? Perhaps this is what is happening because there have been plenty of buys of GKN by these sorts??

[meanwhile] 19/3/2018 15:33

A bit of maths follows :-
If you bought 1690 MRO shares now, it would cost you £3770 at current price.
If you bought 1000 GKN shares now, it would cost you £4230 at current price.

If the bid succeeds, the GKN shareholder would get the same 1690 MRO shares for his 1000 GKN, bought for £4230, but also £810 cash, making his 1690 MRO shares, cost = £3420, 10% less than the MRO buyer today.

This tells me the market believes the bid won't succeed, otherwise 10% gain would be there for the taking. The wider the gap becomes, the less the market thinks it will succeed. At today's start, the gap had narrowed, from Friday, possibly because of the pro-MRO pension story, now it's widened again.

[minerve] 19/3/2018 12:36

MEANWHILE

I haven't been following the two respective share prices. Which way it goes is really anyone's guess at the moment. Thankfully only a week or so left.

[meanwhile] 19/3/2018 12:14

Minerve,
For your headache, take ibuprofen + paracetamol and lay still for a while.

What is your honest interpretation of how the market thinks the vote is going?

[minerve] 19/3/2018 11:42

The only thing I have at the moment is a severe headache stemming from the majority's incapacity to engage and focus on what is important for this country and our following generations for decades to come.

[meanwhile] 19/3/2018 10:31

brexitplus,

For Christ's sake, how long do we have to listen to your promotional presentation?
You've got these shares and they've gone up, you've visited here, eaten fine dining there, drank somewhere else, backed this horse and your young wife's like this wonderful person. We all know how you enjoy your idea of the sophisticated things in life, so you can stop now and talk about Melrose.

As well as my wallet, I've got a big money sack, several cars, a big house, 3 young wives, several shops and the decency to keep it to myself.

[brexitplus] 19/3/2018 08:32

Exciting times.

Not only do I have Melrose but today Sherborne C after Barclays.

Whatever next?!!!

Glad you enjoyed your golf Gettingrichslow. Great game.

[meanwhile] 18/3/2018 20:11

Melrose fights for GKN with vow to pump £1bn into pension fund - FT 2 hours ago

Melrose Industries has stepped up its fight to win support for its hostile £8bn cash and shares bid for GKN, with a pledge to pump £1bn into the UK engineering company’s pension fund. The UK turnround specialist is expected to lay out plans to increase significantly the amount of money it will inject into GKN’s pension scheme, just days after the fund’s trustees criticised Melrose for failing to address “key concerns” in its latest bid. The contentious bid has attracted opposition from politicians, customers and some shareholders. Melrose has already offered to put as much as £150m into the scheme should the takeover go ahead. It is expected to detail plans to increase its total pension injection to about £1bn, by raising its annual contributions and promising to put in lump sums every time it sells part of the business. The move could help allay concerns with Melrose’s bid as the two-month tussle for one of the UK’s oldest engineering companies enters its final stages. The pension plan was first revealed in the Sunday Times. Melrose declined to comment. The pension trustees have suggested the deficit is £1.1bn, but the figure is more than £2bn when based on the amount of money that would needed to enable the scheme to be transferred to an insurance company.RecommendedBacking GKN management will be leap of faith for shareholdersOpposition to hostile bid for GKN gathers paceDana woos GKN shareholders with dual-listing optionGKN has already laid out plans to sell its Driveline unit to US group Dana in a deal worth $6.1bn. As part of the transaction, it will transfer £1.4bn of its pension liabilities to the buyer.Melrose’s latest proposal comes as support for GKN continues to gather strength, with investors accounting for more than 5 per cent of the group publicly backing the FTSE engineer. Over the weekend, two of GKN’s top 20 shareholders said they planned to reject the Melrose offer. Pelham Capital, which owns about 2 per cent of GKN, and Sanderson Asset Management, which holds about 1.5 per cent, both said Melrose’s increased offer — worth 467p a share including the latest dividend — still undervalued the engineering company. “Pelham Capital supports the recent actions taken by the new management team at GKN. We believe the combination of Driveline with Dana and the plan outlined for the Aerospace business justifies a fair value closer to 600p. This upside is not currently reflected in the revised Melrose offer,” it said. The additional support for GKN comes just days after two other leading shareholders — Lancaster Investment Management and Jupiter Asset Management — both said they planned to reject the Melrose offer. Their comments follow the intervention on Wednesday of Airbus, GKN’s single biggest customer, which told the Financial Times that it would be “practically impossible” to give new work to GKN if it were owned by Melrose. Airbus expressed concerns over long-term investment. However, Melrose has insisted that it is committed to long-term investment in GKN and has pledged to invest at least as much as GKN has done in recent years. Melrose has won the public support of David Cumming, chief investment officer at Aviva, which holds about 1 per cent of GKN. Aviva also owns more than 5 per cent of Melrose. The concerns raised by investors and customers signal that tension is mounting as the closely watched takeover battle draws to an end. Investors have until March 29 to cast their vote.