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Melrose increases hostile bid for GKN to $11.2 billion

TOLEDO, Ohio — Dana Inc. and British supplier GKN agreed to a $6.1 billion deal last week that would merge GKN's automotive business into Dana and push the Toledo, Ohio, company ahead of its larger competitors such as BorgWarner, Continental and ZF Friedrichshafen in driveline sales.

The deal must be approved by regulators and shareholders, but it would create the industry's largest driveline supplier, with an estimated $14.2 billion in combined global sales in 2017.

The announcement comes amid a hostile takeover bid for GKN by Melrose Industries, a London investment group.

Under terms of the deal, GKN would receive $1.6 billion in cash from the merger as well as a 47.25 percent stake in the combined company.

The new company, Dana PLC, would continue to be headquartered in suburban Toledo and remain listed on the New York Stock Exchange under the DAN symbol, but it would have a tax domicile in the United Kingdom, Dana CEO James Kamsickas said.

Dana expects the deal, if approved, to close in the second half.

Kamsickas told Automotive News on Friday, March 9, that the plan gives Dana a much improved position in the growing Chinese market, where GKN operates a joint venture with Chinese auto giant SAIC.

"With GKN's joint venture, we'll step into the premier spot [in the passenger vehicle market], and we already had the largest joint venture there in the commercial vehicle side" with Dongfeng.

Kamsickas said he has spoken with many of Dana's and GKN's automaker customers and said they were supportive of the merger, especially compared with the scenario of GKN being acquired by a financial company.

"Every one of the customers has been very bullish on it," Kamsickas said. "If you give a customer the option of going with Dana, at 114 years of trusted partnership, and being a strategic buyer, or going with a financial sponsor, it's a no-brainer."

On a conference call with analysts, Kamsickas said the two companies have a long history of cooperation with each other and a complementary portfolio of products, with overlap largely confined to all-wheel-drive light-vehicle products. Dana and GKN already have two active joint-venture partnerships in Taiwan and Colombia.

Dana's traditional strengths have been in rear- and four-wheel-drive light vehicles as well as driveline components for the commercial and off-highway sectors. GKN Driveline has focused more intently on front-wheel-drive and awd light-vehicle systems, as well as the off-highway sector.

Complementary transaction

"I've done a lot of [mergers and acquisitions] in my career," Kamsickas said. "I don't know that I've witnessed a more complementary transaction."

Kamsickas said Dana "did a reach-out in early December to say that this seems to make sense." He said talks progressed through December and into January.

"Timing's everything," Kamsickas said.

GKN has been fighting off Melrose's interests since January, when it spurned an unsolicited takeover bid. Anne Stevens, 69, was named CEO in December. She spent 26 years at Ford, leaving in 2006 as COO of the Americas.

Stevens: CEO since December

Takeover battle

Melrose then turned hostile and took its offer, which at the time valued GKN at 7.4 billion pounds ($10.23 billion), directly to GKN's shareholders. GKN announced plans during the tussle to sell its powder metallurgy business.

The Dana plan will leave GKN's aerospace business as the sole operation of the remaining U.K. company. But it also could prompt Melrose to raise its bid.

"Different things happened in the U.K., but we stayed on our path," Kamsickas said.

Folding in GKN's operations would enable Dana to capitalize on GKN's advanced work with light-duty electrification, particularly in China. Dana CFO Jonathan Collins said growing demand for electrification presents opportunities for growth for the combined company because its per-vehicle content is likely to grow exponentially. GKN has supplied components to eight global electrified platforms, with others in the pipeline.

"Combining these businesses gives us a balanced portfolio across the globe, with significant upside," Collins said.

Kamsickas said the $6.1 billion deal "fills out [Dana's] portfolio," adding that he doesn't see any other mergers or acquisitions on the horizon. "We're going to be very focused on this transformation and doing it right. This fills out our portfolio, so that's really where our focus is going to be," Kamsickas said.

Reuters contributed to this report.