GKN (LON:GKN) is planning to return up to £2.5 billion to shareholders, the blue-chip company has said. The announcement came as the automotive and aerospace specialist updated investors on its strategy, as it looks to fend off a hostile bid by turnaround specialist Melrose Industries (LON:MRO).
GKN’s share price has been steady in London in today’s session, having added 0.53 percent to 400.10p as of 09:43 GMT. The shares are marginally underperforming the broader UK market, with the benchmark FTSE 100 index currently standing 0.66 percent higher at 7,215.47 points.
GKN flags cash return
GKN updated investors on its strategy this morning, announcing that it was targeting up to £2.5 billion cash return to shareholders over the next three years. The bulk of the planned return is expected to come from divestments executed within the first 12-18 months, including the sale of the group’s Powder Metallurgy business.
The company further noted that its progressive dividend policy will be to target an average payout of 50 percent of free cash flow over the period of 2018-2020, and expects to distribute surplus cash to shareholders, subject to maintaining an investment grade credit rating.
The cash return pledge comes as GKN looks to fend off a hostile takeover bid from Melrose, with the turnaround specialist having recently turned to the blue-chip group’s shareholders after being rejected by the company board. GKN also told investors that it was planning to separate its automotive and aerospace businesses operationally now, and formally, when it maximises shareholder value.
“The new strategy brings clarity, accountability and focus to GKN’s world class businesses and will allow the Group to attain world class financial performance,” the group’s chief executive Anne Stevens commented in the statement. “We have a plan and we are dedicated to delivering it.”
Bloomberg meanwhile quoted Sandy Morris, an analyst with Jefferies, as saying that GKN’s plan “likely will not end the debate about who would better execute it”.