The GKN Aerospace logo is seen on the overalls of an employee as he works on a trailing wing edge of an Airbus SAS A380 aircraft, a unit of European Aeronautic, Defence & Space Co. (EADS), at GKN Plc's factory in Filton, U.K., on Wednesday, Sept. 12, 2012. GKN completed its acquisition of Volvo AB's aircraft-engine unit, Volvo Aero, for 633 million pounds to tap demand for lightweight composite parts and narrow the gap with competitors such as Safran SA, earlier this month. Photographer: Chris Ratcliffe/Bloomberg
Melrose’s £8bn acquisition of GKN in a hostile takeover last year triggered a backlash from politicians and trade unions © Bloomberg

Melrose Industries has taken its first steps towards breaking up the former UK engineering group GKN, which it bought in a hostile takeover last year.

The FTSE 100 company said it would make £200m by offloading one of GKN’s businesses that supplies gearboxes for agricultural and mining vehicles and selling its minority stake in a Belgian aerospace supplier.

Melrose’s £8bn swoop on GKN was the biggest hostile takeover in the City of London since Kraft’s assault on Cadbury in 2009 and triggered a backlash from politicians and trade unions over fears of cuts to UK jobs and investment.

Although the two divestments are relatively small, they will quell any possible doubts about Melrose’s ability to cash in on investments after it cancelled or delayed sales of other businesses in its portfolio, including GKN’s powder metallurgy division.

The group has agreed to sell Germany-based Walterscheid Powertrain Group to the US-based private equity firm One Equity Partners, with the completion expected in the first half of this year.

One of its subsidiaries has also divested a 43.6 per cent holding in Sabca, which manufactures space launchers as well as aircraft components, to part of the French group Dassault.

Ten per cent of the net £200m proceeds from the disposals will go towards plugging a deficit in the GKN pension scheme — a pledge Melrose made during the acrimonious battle for the aerospace and automotive parts maker.

The rest will be used to pay down some of Melrose’s debt, which increased as a result of the GKN acquisition.

Both divisions had already been designated as not core and earmarked for sale under GKN’s failed takeover defence strategy. This also included a plan to focus on aerospace and merge its vehicle drive businesses with a US rival.

Melrose is a listed turnround specialist that buys underperforming engineering or manufacturing businesses with the goal of increasing profitability before selling them on.

It has won favour among City investors thanks to its strong record on returns, but faced a shareholder protest over excessive boardroom pay last summer.

Melrose reports its first annual results since buying GKN on Thursday. Its shares were flat on Wednesday at 180.9p, giving the group a market capitalisation of £8.8bn.

Mark Fielding of RBC Capital Markets said the disposals reaffirmed Melrose’s “buy, improve, sell” model.

“We continue to expect supportive messaging at the [2018 full-year] results, followed by the capital markets day on April 3 where we expect Melrose to provide more clarity on what can be achieved in terms of divisional margins for the ‘core’ GKN businesses,” he added.

Get alerts on Melrose Industries PLC when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Comments have not been enabled for this article.

Follow the topics in this article