LEI: 213800QNZ22GS95OSW84

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF THAT JURISDICTION.

18 January 2018

GKN plc ("GKN")

Statement regarding rejection of unsolicited offer

Further to its rejection of the offer announced on 17 January 2018 by Melrose Industries PLC ("Melrose"), GKN wishes to correct some of the misleading statements made by Melrose in its announcement and investor presentation released on 15 January 2018.

Response to statements made by Melrose

• Melrose states that the terms of its offer represent a premium of approximately 32% over the closing share price of GKN on 5 January 2018, the last business day prior to the approach.

  • GKN believes that this statement is misleading. GKN’s Board considers 32% to be a fake premium.Melrose’s market capitalisation on 5 January was significantly smaller than GKN’s on the same day, Melrose is proposing to fund 80% of the offer consideration in shares and Melrose brings no industrial synergies.Instead, GKN’s shareholders are themselves funding the majority of this premium.The true, delivered premium is less than 11% ^(1)(2)(3).

• Melrose implies that GKN wants a "hasty break-up" of its businesses.

  • This is not the case. As clearly stated in GKN’s announcement released on 12 January, the timing of the separation will be determined by the need to maximise the economic benefits and minimise the costs associated with separation. The immediate focus of GKN’s new management is on executing Project Boost which aims to deliver a step change in cash generation and profit margin.

• Melrose implies that it can replicate the operational improvements and generate shareholder returns consistent with what it has achieved previously in substantially smaller businesses, supplying vastly different customer types.

  • GKN is a significantly larger business than any which Melrose has acquired in the past. GKN is more than 5 times larger than any of Melrose’s prior acquisitions by revenue. Melrose has very limited experience at Board level of managing Tier 1 aerospace and automotive suppliers. In contrast, Anne Stevens, having been COO of Ford Americas and Chairman, CEO and President of Carpenter Technology, has direct experience of Tier 1 supplier relationships and of transforming a business of the size, complexity and technological content of GKN. Importantly, she has experience in aerospace, automotive and powder metallurgy.

• Melrose implies that GKN's pension liability has increased due to delays in closing the main UK Pension Scheme to future accrual.

  • GKN believes that this is not accurate. The increase in the total aggregate deficit is substantively due to movements in underlying discount rates.

  • Furthermore, GKN notes the statement from the Pension Fund Trustees announced on 16 January 2018 and looks forward to continuing its close working relationship, which has ensured the sustainability of the pension funds through all the pressures that they have faced over many years. The mutual trust between GKN and the Pension Trustees was crucial in enabling last year’s reformation of the Fund led by Jos Sclater, including GKN’s injection of £250 million into the Scheme.

• Melrose states that the terms of its proposal include 81 pence per GKN share payable in cash, which equates to a total cash amount of £1,391 million ⁽⁴⁾. Melrose also states that it expects the combined group’s net leverage to be in line with Melrose’s declared strategy of approximately 2.5x EBITDA as a result of the transaction.

  • GKN’s own balance sheet is funding the vast majority of the 81 pence per share in cash.Melrose’s leverage at 30 June 2017 was 2.3x EBITDA ⁽⁵⁾, while GKN’s leverage at 30 June 2017 was 0.6x EBITDA ⁽⁶⁾.As a result, of the total £1,391 million of cash consideration, Melrose is only able to fund up to £75 million without leverage exceeding 2.5x EBITDA. This is equivalent to less than 5 pence per GKN share.The remainder is effectively being funded by GKN’s existing balance sheet.

However, GKN wholeheartedly agrees with Melrose that GKN is comprised of world-leading businesses that offer upside potential. GKN looks forward to publishing further detailed information in the near future on its plans to deliver this upside potential to existing shareholders through the improvement of GKN's cash generation and profit margin as part of Project Boost, as first announced on 12 January.

Anne Stevens, Chief Executive, GKN, said:

“We believe GKN’s current owners should retain 100% of the benefits of the clear upside potential in GKN, rather than handing 43% of this upside to Melrose and its shareholders. We have already stated that the terms of Melrose’s offer fundamentally undervalue the Company and we are actively engaging with shareholders to explain how our transformation plan will provide value, whilst debunking some of Melrose’s inaccurate assertions.”

Sources and bases

In this announcement

1. GKN’s undisturbed market capitalisation on 5 January of £5,604 million is calculated based on a share price of 326.3 pence per GKN share (being the closing price on 5 January 2018, the last business day before the approach made by Melrose to the GKN Board) and basic shares outstanding (excluding shares held in Treasury) of 1,717,477,744 as announced by GKN on 12 January 2018.

2. Melrose’s undisturbed market capitalisation on 5 January of £4,224 million is calculated based on a share price of 217.6 pence per Melrose share (being the closing price on 5 January 2018, the last business day before the approach made by Melrose to the GKN Board) and basic shares outstanding of 1,941,200,503 as announced by Melrose on 12 January 2018.

3. Based on an undisturbed market capitalisation of the enlarged group of £8,437 million, comprising GKN’s undisturbed market capitalisation of £5,604 million and Melrose’s undisturbed market capitalisation of £4,224 million, less the value of cash consideration to GKN shareholders of £1,391 million ⁽⁴⁾.

   1. Based on an exchange ratio of 1.49 new Melrose shares per GKN share as announced by Melrose on 17 January 2018, GKN shareholders would own approximately 57% of the enlarged group. The total value of the enlarged group attributable to GKN shareholders would therefore be £4,798 million.

   2. When the cash consideration of the offer is included with the above, the total offer value to GKN shareholders is £6,189 million.

   3. Assuming 1,717,477,744 basic shares outstanding for GKN, the delivered price per GKN share is 360 pence. This is equivalent to a premium of approximately 10.4% to the closing price of 326.3 pence per GKN share on 5 January 2018.

4. Cash consideration to GKN shareholders is £1,391m based on 81 pence per share in cash (as announced by Melrose on 17 January 2018) and 1,717,477,744 basic shares outstanding (excluding shares held in Treasury) in GKN.

5. Based on Melrose net debt of £669 million and Melrose net debt / EBITDA of 2.3x as stated in Melrose’s unaudited results for the six months ended 30 June 2017.

6. GKN net debt / EBITDA of 0.6x as stated in GKN’s results announcement for the six months ended 30 June 2017.

Contacts:

GKN plc

Guy Stainer, Investor Relations Director                                                                               

Tel: +44 (0)20 7463 2382

FTI Consulting

Andrew Lorenz / Richard Mountain                                                                                                            

Tel: +44 (0)203 727 1340

Gleacher Shacklock (Financial Adviser to GKN)

Tim Shacklock, Dominic Lee, Tom Quinn                                                               

Tel: +44 (0)20 7484 1150

J.P. Morgan Cazenove (Financial Adviser and Corporate Broker to GKN)

Robert Constant, Dwayne Lysaght, Stephen Smith                                          

Tel: +44 (0)20 7742 4000

UBS (Financial Adviser and Corporate Broker to GKN)

Hew Glyn Davies, James Robertson, Jonathan Retter                                     

Tel: +44 (0)20 7567 8000

Further information

This announcement is not intended to, and does not, constitute or form part of any offer, invitation or the solicitation of an offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of, any securities whether pursuant to this announcement or otherwise.

The distribution of this announcement in jurisdictions outside the United Kingdom may be restricted by law and therefore persons into whose possession this announcement comes should inform themselves about, and observe, such restrictions. Any failure to comply with the restrictions may constitute a violation of the securities law of any such jurisdiction.

Gleacher Shacklock LLP ("Gleacher Shacklock"), which is authorised and regulated by the Financial Conduct Authority in the United Kingdom, is acting exclusively as financial adviser to GKN and no one else in connection with the matters set out in this announcement and will not be responsible to anyone other than GKN for providing the protections afforded to clients of Gleacher Shacklock or for providing advice in connection with the subject matter of this announcement or any other matter referred to herein.

J.P. Morgan Securities plc (which conducts its UK investment banking business as J.P. Morgan Cazenove) (“J.P. Morgan Cazenove”) is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the United Kingdom. J.P. Morgan Cazenove is acting exclusively as financial adviser to GKN and no one else in connection with the matters set out in this announcement and will not regard any other person as its client in relation to the matters set out in this announcement and will not be responsible to anyone other than GKN for providing the protections afforded to clients of J.P. Morgan Cazenove or its affiliates, nor for providing advice in relation to any matter referred to herein.

UBS Limited ("UBS") is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the United Kingdom. UBS is acting exclusively as financial adviser to GKN and no one else for the purpose of the consideration of a proposed acquisition by Melrose and will not be responsible to anyone other than GKN for providing the protections offered to clients of UBS nor for providing advice in relation to the subject matter of this announcement or any transaction, arrangement or other matter referred to herein.

Disclosure requirements of the Code

Under Rule 8.3(a) of the Code, any person who is interested in 1% or more of any class of relevant securities of an offeree company or of any securities exchange offeror (being any offeror other than an offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the offer period and, if later, following the announcement in which any securities exchange offeror is first identified. An Opening Position Disclosure must contain details of the person’s interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s). An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 pm (London time) on the 10th business day following the commencement of the offer period and, if appropriate, by no later than 3.30 pm (London time) on the 10th business day following the announcement in which any securities exchange offeror is first identified. Relevant persons who deal in the relevant securities of the offeree company or of a securities exchange offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing Disclosure.

Under Rule 8.3(b) of the Code, any person who is, or becomes, interested in 1% or more of any class of relevant securities of the offeree company or of any securities exchange offeror must make a Dealing Disclosure if the person deals in any relevant securities of the offeree company or of any securities exchange offeror. A Dealing Disclosure must contain details of the dealing concerned and of the person’s interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s), save to the extent that these details have previously been disclosed under Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 pm (London time) on the business day following the date of the relevant dealing.

If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of an offeree company or a securities exchange offeror, they will be deemed to be a single person for the purpose of Rule 8.3.

Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with any of them (see Rules 8.1, 8.2 and 8.4).

Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel’s website at www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the offer period commenced and when any offeror was first identified. You should contact the Panel’s Market Surveillance Unit on +44 (0)20 7638 0129 if you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure.

Publication on a website

In accordance with Rule 26.1 of the Code, a copy of this announcement will be published on the GKN website (www.gkn.com) by no later than 12 noon on the business day following this announcement. The content of the website referred to in this announcement is not incorporated into and does not form part of this announcement.