Fate of GKN hangs in balance as investors decide on Melrose bid

By Ben Martin

LONDON, March 29 (Reuters) - The three-month battle for GKN will be decided on Thursday when the deadline for shareholders to accept Melrose Industries (Frankfurt: 27MA.F - news) ' 8 billion pound ($11 billion) hostile bid expires, ending one of the most closely-contested takeover fights in Britain for years.

Investors in engineer GKN (Frankfurt: 694194 - news) have until 1200 GMT to back Melrose (LSE: 136541.L - news) 's cash-and-shares offer for the aerospace and automotive parts supplier. Melrose, a UK-based industrial turnaround specialist seeking to buy a much bigger firm, has set the acceptance level for its bid at 50 percent plus one share.

Failure of the offer would pave the way for GKN to press ahead with an alternative deal it struck with U.S. axles and driveshafts maker Dana earlier this month as part of its defence against Melrose's hostile approach.

GKN has proposed merging its automotive business, which supplies components to companies including Volkswagen (IOB: 0P6N.IL - news) , with Dana in a cash-and-shares tie-up that is dependent on the Melrose bid falling away.

To convince shareholders to reject Melrose, GKN has also pledged to find a buyer for its powder metallurgy business and return as much as 2.5 billion pounds to investors.

Along with the Dana transaction, this would reshape GKN to focus on its aerospace operations, which supplies parts for the Black Hawk military helicopter and Eurofighter Typhoon.

Both the Melrose and Dana deals would mark a pivotal moment in the history of GKN, which traces its roots back more than 250 years and which produced Spitfire planes during the Second World War. The takeover attempt by Melrose, Britain's biggest hostile bid since Kraft pounced on Cadbury in 2009, has attracted widespread scrutiny, including from lawmakers and unions.

So far, two of GKN's largest shareholders have come out on opposite sides, and analysts say the result could be close.

Melrose sweetened its bid on March 12 to offer 1.69 new Melrose shares and 81 pence in cash for each GKN share, which would hand GKN investors 60 percent of an enlarged Melrose following the deal. The proposal currently values GKN shares at about 458.4 pence each.

The Dana transaction, meanwhile, would give GKN shareholders a 47.25 percent stake in the New York-listed company. Dana has also said it will secure a listing in London as part of its proposed merger with GKN's autos business.

"Over the last three months, it has become clear to GKN that Melrose's attempts to engage with a broad group of GKN's stakeholders – its customers, its employees, its pensioners, regulators such as CFIUS and most recently the UK government – have been hurriedly conducted and demonstrate a lack of care and preparation," GKN's chairman Mike Turner said on Wednesday.

Meanwhile, Christopher Miller, Melrose's chairman, said his company had "repeatedly over-delivered on its promises and is offering GKN shareholders an immediate and certain value in addition to a 60 percent majority of the considerable upside."

GKN shares closed down 1.7 percent at 423 pence on Wednesday. Melrose's ended down 0.2 percent at 223.3 pence.

($1 = 0.7089 pounds) (Reporting by Ben Martin; Editing by Mark Potter)