The industrialists who bought GKN, the British engineering group, in a controversial £8bn deal this year are weighing options for one of its key divisions after receiving a string of “low-ball” takeover offers.
Sky News has learnt that executives at Melrose are deciding whether to press on with an immediate auction of GKN Powder Metallurgy following initial bids last week valuing the business at about £1.6bn.
That figure was well below analysts’ forecasts that GKN Powder Met would command a price of £2bn, and has raised the prospect that Melrose may halt the sale process.
“They will sell the business, but it may not be through this particular auction,” a person close to Melrose said on Sunday evening.
Sources said that Apollo and PAI Partners were among the private equity firms which tabled indicative offers last week.
Any decision to abort the sale of Powder Met would disappoint its new owner’s shareholders, who were informed of the plans as part of a trading update several weeks ago.
It would also have consequences for GKN’s pension schemes, which were promised part of the proceeds of asset disposals during Melrose’s contentious takeover bid earlier this year.
Jefferies and Rothschild are advising on the Powder Met sale, which was put on the agenda by GKN’s board as part of its defence against Melrose’s hostile bid.
Powder Met makes high-performance components for automotive and industrial applications through two main divisions.
It manufactures for 3,000 customers around the world, producing 13 million parts every day.
Melrose’s £8bn raid on one of British industry’s most famous names triggered a political firestorm which abated only when Business Secretary Greg Clark secured binding undertakings from the Melrose board about their stewardship of GKN assets.
Under the terms of its deal with the government, Melrose must give ministers “early visibility” of potential bidders for any GKN operations with national security implications.
Mr Clark or his successors would also have a veto over any such sale.
Melrose also offered a number of other commitments such as retaining GKN’s aerospace division for at least five years, and maintaining research and development spending at pre-takeover levels.
The team of businessmen who founded Melrose have enjoyed huge success with their approach of buying, improving and selling poorly performing industrial businesses.
However, their hostile bid for GKN was on an altogether different scale to any of their previous acquisitions.
GKN’s board, led by the City veteran Mike Turner, claimed that Melrose’s team had insufficient expertise or long-term focus to manage aerospace and automotive businesses with global customers such as Airbus and Jaguar Land Rover.
A fractious battle came to an end in March, when just over 52% of GKN’s investors voted in favour of the deal.
The tussle generated more than £100m in bankers’ fees, while Melrose has pledged to eliminate GKN’s pension deficit with up to £1bn in contributions over the next five years.
Melrose is also progressing plans to sell other GKN businesses such as Off-Highway Powertrains, which is expected to fetch a more modest sum.
The company has also said it will review its boardroom pay policies after a revolt at its annual meeting earlier this year saw nearly a quarter of shareholders oppose payouts of more than £40m to each of its top four executives.
A spokesman for Melrose declined to comment on the auction of Powder Met, while PAI also declined to comment.