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GKN agrees $6 billion tie-up with Dana to help fend off Melrose


By Ben Martin

(Reuters) - has struck a $6.1 billion deal to merge its business with U.S. company in a move by the British to fend off a hostile takeover by .

FTSE 100-listed said on Friday that it had agreed to combine its Driveline division with the Ohio-based maker of axles and driveshafts in a deal that gives shareholders a 47.25 percent stake in the enlarged, U.S.-listed group.

The British company, customers of which include and Volkswagen, will also receive $1.6 billion in cash while $1 billion of pension deficit will be transferred to the combined business.

It deals a blow to group Melrose, which has been pursuing since January, when the engineering group spurned its unsolicited cash-and-shares bid that at the time valued at 7.4 billion pounds ($10.2 billion).

Melrose responded by turning hostile and taking its offer directly to shareholders, putting pressure on the engineer's newly appointed chief executive,

The deal with Dana could now force Melrose to raise its bid.

By 1300 GMT on Friday, which was the first closing date of its offer, Melrose had received acceptances from investors holding only 5.76 percent of stock, the said. It added that it was extending the offer until March 29.

shares advanced 3.3 percent to close at 435.1 pence in That is higher than the level of Melrose's offer, which currently values at about 414.8 pence per share based on the Melrose share price, which was up 4 percent at 224.7 pence.

Dana shares climbed 4.1 percent to $27.27.


"We might need to revisit our offer, I think that's what the market is telling us," a source close to Melrose said.

According to UK rules, Melrose has until March 19 to improve its bid. But because the break truncates the timetable it effectively has until March 15 to sweeten its offer terms.

The deal with Dana "provides significantly greater value for shareholders than the Melrose offer", said.

It added that the merger gives Driveline an enterprise value, which includes debt, of $6.1 billion, based on Dana's closing share price of $26.20 on Thursday. The tie-up is expected to deliver annual cost savings and other benefits worth $235 million within three years, it said.

Together with plan to sell its powder metallurgy business, the deal will leave the company focused on aerospace, supplying parts for aircraft including the military helicopter and

was left vulnerable to bid approaches after two profit warnings in October and November that were caused by problems at its U.S. business and sent its share price tumbling.

Dana approached late in 2017 and the pair began talks early this year, the British company disclosed on Friday. Its division has also attracted a number of suitors since January, but the board decided their proposals undervalued the business and did not pursue them, the company added.


If the Driveline deal is successful Dana will become a UK domiciled company, though it will remain headquartered in and its shares will be traded on the Stock Exchange. It will also be led by James Kamsickas, Dana's

shareholders will need to approve the merger, which means they will have to weigh its merits against a Melrose deal.

That will include considering whether they want to hold a stake in New York-listed Dana or London-listed Melrose.

"Following the (Dana) transaction, shareholders will own 47 percent of a $14 billion revenue global group and will retain ownership of outstanding remaining businesses," said

However, Melrose argued that many investors would neither wish nor be able to hold U.S. stock.

"A hasty sale of one of Britain's most important businesses will leave it listed overseas, run by a foreign management team and rebranded as a U.S. business," Melrose said.

"In our view it is structured in a way prejudicial to shareholders' interests."

Separately, the trustees of group pension said the arrangements agreed as part of the Driveline transaction provide "appropriate mitigation to the schemes".

and are advising Dana, while the U.S. company's board is being advised by is working with JP Morgan, and ($1 = 0.7233 pounds)

(Reporting by in and Noor Zainab Hussain; Editing by Keith Weir, and David Goodman)

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

First Published: Fri, March 09 2018. 23:43 IST