GKN (LON:GKN) is using its pension scheme as part of its defence against Melrose Industries. The FTSE 100 group is currently facing a hostile bid, with Melrose having recently turned to the blue-chip company’s shareholders following a rejection by GKN’s board.
GKN’s share price has been little changed in today’s session, having inched 0.09 percent higher to 436.40p as of 08:28 GMT, marginally underperforming the broader UK market, with the benchmark FTSE 100 index currently standing 0.18 percent higher at 7,679.53 points. The group’s shares have added just under a quarter to their value over the past year, as compared with about a seven-percent rise in the Footsie.
GKN updates on pensions
GKN issued a statement this morning, noting that unwanted suitor Melrose had noted that the combined group would have net leverage in line with approximately 2.5x EBITDA, ‘materially higher’ than the FTSE 100 group’s leverage level of 0.6x as at June 30, 2017. GKN pointed out that this “may have implications for the covenant strength of the Company, the level of the technical provisions deficit and therefore the level of immediate and/or long-term cash funding requirements”.
“GKN’s covenant strength is critical to investment strategy and the technical provisions,” the blue-chip group continued, saying that its covenant “was assessed at the ‘high end of good’ during the last triennial valuations”.
The statement comes with GKN looking to defend itself against Melrose’s hostile bid, having unveiled plans to split its aerospace and automotive businesses.
Group receives approaches
In a separate development, the Financial Times reported on Friday that GKN had received several approaches for its individual businesses. One top-20 investor who met management when the Melrose bid was launched told the newspaper that he had understood that there had been between 10 and 15 approaches for GKN’s automotive business since the board announced plans to split the company’s divisions into separate entities in response.