According to the announcement, GKN will reap $1.6 billion in cash and its shareholders will be given roughly $3.5 billion worth of shares in the new company, to be known as Dana PLC. GKN's board added that the proposed deal, along with its vision for GKN Aerospace, was a superior prospect for shareholders than an offer tabled by Melrose Industries.
Engineering giant GKN, which is now trying to fend off a £7.4bn bid from turnaround investor Melrose Industries, today confirmed it had reached an agreement to merge part of its business with Dana.
Under terms of the agreements, Dana shareholders will own approximately 52.75 percent of the company with GKN shareholders owning 47.25 percent. This mix of consideration preserves the company's strong balance sheet, with an expected net debt / adjusted EBITDA ratio (including GKN's share of its China joint venture but excluding any synergies) of approximately 2.0x.
"We might need to revisit our offer, I think that's what the market is telling us", a source close to Melrose said.
Today, GKN said the Dana move brings together "two highly complementary businesses" and will leave GKN a "focused, world-class aerospace company".
There's been a big shakeup in the automotive driveline market with Dana Incorporated confirming it is merging with rivals, GKN Driveline.
"GKN is continuing to pursue the sale of its non-core businesses including Powder Metallurgy".
GKN is targeting core margins of at least 14% for 2020 from its aerospace business.
The British company disclosed on Friday that it was approached by Dana late in 2017 and began talks early this year.
Dana will be a newly-formed United Kingdom public limited company and will be listed on the New York Stock Exchange and headquartered in Ohio.
"This transformative and strategic transaction solidifies Dana as a world leader in vehicle drive systems and establishes a leading position in electric propulsion, which we see as the future of vehicle drivetrains", said James Kamsickas, president and CEO of Dana.
GKN's shareholders will need to approve the merger, which means they will have to weigh its merits against a Melrose takeover.
"Following the transaction", Turner added, "GKN shareholders will own 47% of a USD14 billion revenue, global automotive group and will retain ownership of GKN's outstanding remaining businesses".
The trustees of GKN's group pension said the arrangements agreed as part of the transaction provide "appropriate mitigation to the schemes". GKN is working with JP Morgan, Gleacher Shacklock and UBS.