Melrose Industries PLC
Final offer for GKN – unlocking the potential
March 2018
Disclaimer
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This presentation has been prepared by or on behalf of Melrose Industries plc (“Melrose”) in connection with the potential acquisition of the entire issued and to be issued share capital of GKN plc (“GKN”) by Melrose (the “Proposed Acquisition”). The information set out in this
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Unless expressly stated otherwise, no statement in this presentation (including any statement of estimated synergies) is intended as a profit forecast or estimate for any period and no statement in this presentation should be interpreted to mean that cash flow from operations, free cash
flow, earnings or earnings per share for Melrose, GKN or the combined group, as appropriate, for the current or future financial years would necessarily match or exceed the historical published cash flow from operations, free cash flow, earnings or earnings per share of Melrose or
GKN, as appropriate.
Statements of estimated cost savings and synergies relate to future actions and circumstances which, by their nature, involve risks, uncertainties and contingencies. As a result, any cost savings or synergies referred to may not be achieved, may be achieved later or sooner than
estimated, or those achieved could be materially different from those estimated. Nothing in this presentation constitutes a quantified financial benefits statement for the purposes of Rule 28 of the City Code on Takeovers and Mergers (the “Takeover Code”). No statement in this
presentation should be construed as a profit forecast or interpreted to mean that the combined group's earnings in the first full year following implementation of the Proposed Acquisition, or in any subsequent period, would necessarily match or be greater than or be less than those of
Melrose or GKN for the relevant preceding financial period or any other period.
The Proposed Acquisition relates to the shares of two UK companies and is subject to UK procedural and disclosure requirements that are different from certain of those of the US. Any financial statements or other financial information included in this presentation may have been
prepared in accordance with non-US accounting standards that may not be comparable to the financial statements of US companies or companies whose financial statements are prepared in accordance with generally accepted accounting principles in the US. It may be difficult for US
holders of shares to enforce their rights and any claims they may have arising under the US federal securities laws in connection with the Proposed Acquisition, since Melrose and GKN are located in countries other than the US, and some or all of their officers and directors may be
residents of countries other than the United States. US holders of shares in Melrose or GKN may not be able to sue Melrose, GKN or their respective officers or directors in a non-US court for violations of US securities laws. Further, it may be difficult to compel Melrose, GKN and their
respective affiliates to subject themselves to the jurisdiction or judgment of a US court.
It is intended that the Proposed Acquisition will be implemented by way of a takeover offer under English law (the “Offer”). No document relating to the Offer will be posted into the US, but an accredited investor may be permitted to participate in the Offer pursuant to the “Tier II” tender
offer rules included in Regulation 14E under the US Exchange Act, , together with the requirements of the City Code. Accordingly, the Offer will be subject to disclosure and other procedural requirements, including with respect to withdrawal rights, offer timetable, settlement procedures
and timing of payments that may be different from those applicable under US domestic tender offer procedures and law.
Alternatively, if the Proposed Acquisition is implemented by way of a scheme of arrangement under English law (with the consent of the Takeover Panel and the agreement of GKN), it will be subject to the disclosure requirements and practices applicable in the UK to schemes of
arrangement which differ from the disclosure requirements of the US tender offer rules. If the Proposed Acquisition is implemented by way of a scheme of arrangement, any Melrose shares proposed to be issued to GKN shareholders pursuant to the terms of the Proposed Acquisition
are expected to be issued in reliance upon the exemption from the registration requirements of the US Securities Act provided by Section 3(a)(10) of the US Securities Act. Section 3(a)(10) exempts securities issued in exchange for one or more outstanding securities from the general
requirements of registration where the terms and conditions of the issuance and exchange of such securities have been approved by a court, after a hearing on the fairness of the terms and conditions of the issuance and exchange at which all persons to whom such securities will be
issued have the right to appear and be heard. The Court will hold a hearing on the scheme’s fairness to GKN shareholders, at which hearing all such shareholders will be entitled to attend in person or through counsel.
Investors should be aware that Melrose may purchase or arrange to purchase GKN Shares otherwise than under any takeover offer or scheme of arrangement related to the Proposed Acquisition, such as in open market or privately negotiated purchases.
This presentation does not constitute an offer of securities for sale in the US or an offer to acquire or exchange securities in the US. Securities may not be offered or sold in the US absent registration or an exemption from registration, and any public offering of securities to be made in
the United States will be made by means of a prospectus that may be obtained from the issuer or the selling security holder and that will contain detailed information about the company and management, as well as financial statements. No offer to acquire securities or to exchange
securities for other securities has been made, or will be made, directly or indirectly, in or into, or by use of the mails, any means or instrumentality of interstate or foreign commerce or any facilities of a national securities exchange of, the US or any other country in which such offer may
not be made other than (i) in accordance with the US Securities Act, as amended, or the securities laws of such other country, as the case may be, or (ii) pursuant to an available exemption from such requirements.
Nothing in this presentation shall be deemed an acknowledgement that any SEC filing is required or that an offer requiring registration under the US Securities Act may ever occur in connection with the Proposed Acquisition.
The Melrose shares proposed to be issued to GKN shareholders pursuant to the terms of the Proposed Acquisition have not been, and will not be, registered under the securities laws of any state or jurisdiction in the United States and, accordingly, will only be issued to the extent that
exemptions from the registration or qualification requirements of state “blue sky” securities laws are available or such registration or qualification requirements have been complied with.
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employees or shareholders of Melrose or GKN or their respective affiliates nor with any of Melrose or GKN’s suppliers or customers or any governmental or regulatory body without the prior written consent of Melrose or GKN (as applicable).
N M Rothschild & Sons Limited, Investec Bank plc and RBC Capital Markets are acting only for Melrose and will not be responsible to anyone other than Melrose for providing the protections afforded to clients of N M Rothschild & Sons Limited, Investec Bank plc and RBC Capital
Markets for providing advice in relation to any potential offering of securities of Melrose.
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This presentation contains forward-looking statements concerning the financial condition, results of operations and businesses of Melrose and of the Proposed Acquisition. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements.
Forward-looking statements are statements of future expectations that are based on management’s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those
expressed or implied in these statements. Forward-looking statements include, among other things, statements concerning the potential exposure of Melrose to market risks and statements expressing management’s expectations, beliefs, estimates, forecasts, projections and
assumptions including as to future potential cost savings, synergies, earnings, cash flow, return on average capital employed, production and prospects. These forward-looking statements are identified by their use of terms and phrases such as ‘‘anticipate’’, ‘‘believe’’, ‘‘could’’,
‘‘estimate’’, ‘‘expect’’, ‘‘intend’’, ‘‘may’’, ‘‘plan’’, ‘‘objectives’’, ‘‘outlook’’, ‘‘probably’’, ‘‘project’’, ‘‘will’’, ‘‘seek’’, ‘‘target’’, ‘‘risks’’, ‘‘goals’’, ‘‘should’’ and similar terms and phrases. There are a number of factors that could affect the future operations of Melrose and could cause those results
to differ materially from those expressed in the forward-looking statements included in this presentation, including (without limitation): (a) changes in demand for Melrose’s products; (b) currency fluctuations; (c) loss of market share and industry competition; (d) risks associated with the
identification of suitable potential acquisition properties and targets, and successful negotiation and completion of such transactions; and (e) changes in trading conditions. All forward-looking statements contained in this presentation are expressly qualified in their entirety by the
cautionary statements contained or referred to in this section. Readers should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as at the specified date of the relevant document within which the statement is contained. Neither Melrose
nor GKN undertake any obligation to publicly update or revise any forward-looking statement as a result of new information, future events or other information. In light of these risks, results could differ materially from those stated, implied or inferred from the forward-looking statements
contained in this presentation.
IMPORTANT NOTICE
Each of the Melrose directors, whose names are set out on the “Board of Directors” page of the Melrose website at www.melroseplc.net/about-us/directors (the “Melrose Directors”), accepts responsibility for the information contained in this presentation, provided that the only
responsibility accepted by them in respect of information relating to GKN and the GKN directors, which has been compiled from published sources, is to ensure that such information is correctly and fairly reproduced and presented.
To the best of the Melrose Directors’ knowledge and belief (who have taken all reasonable care to ensure that such is the case), the information contained in this presentation is in accordance with the facts and, where appropriate, does not omit anything likely to affect the import of such
information.
Certain financial data has been rounded. As a result of this rounding, the totals of data presented in this presentation may vary slightly from the actual arithmetic totals of such data.
2
Highlights
3
Our Final Offer: a deliverable and valuable proposition
Final offer
valued at 467 pence per share, valuing GKN at £8.1 billion
GKN shareholders to own 60% of Melrose, a UK listed manufacturing powerhouse, and receive £1.4 billion
in cash
Attractive immediate premium of 43%
All recent attempts to engage in constructive discussions have been refused by the GKN Board
Dana transaction is prejudicial to GKN’s UK shareholders and is, in our view, a bad deal for other
stakeholders including UK PLC
Deadline for acceptances is 1.00 p.m. on Thursday, 29 March 2018
1
Offer will not be increased under any circumstances
1. Code reservation: Melrose reserves the right to extend this deadline if GKN consents to such extension for the purposes of gaining CFIUS approval only (as GKN said it
would be willing to consider doing in its announcement of 9 February 2018)
Melrose’s model: consistently creating high shareholder returns
4
Melrose
performance
Melrose has consistently generated significant financial returns
1. As at close of business on 5 January 2018, the last business day prior to the approach
2. Assuming participation in all equity issuances, based on 5 January 2018 share price
3. Comprises McKechnie/Dynacast, FKI and Elster
Total shareholder investment £ billion
Total money invested (3.64)
Total money returned to investors 4.35
Net shareholder investment returned 0.71
Market capitalisation
1
4.22
Net shareholder gain 4.93
Generated net
shareholder
value of
£4.9bn
£1 invested in 2003
Average annual return for a shareholder since incorporation
Average return on equity across all three
3
exited acquisitions
£17.7 today
2
21.9%
2
2.7x
Source Melrose
Melrose delivers: the Melrose record for margin improvement
5
(>30% improvement)
(>70% improvement)
(>40% improvement)
(>50% improvement)
McKechnie +6ppts
Elster +9ppts
Dynacast +5ppts
FKI +5ppts
(>60% improvement)
Nortek +6ppts
1
Melrose underlying operating margin improvement
1. Nortek operating profit margin up to 31 December 2017
18%
24%
13%
22%
11%
16%
10%
15%
9%
15%
Entry Current Exit
Elster Nortek
Returns on capex and
restructuring and other
commercial actions
Central cost
savings
Exit of low margin
sales channels
+9ppts
+6ppts
+1ppt
+1ppt
+4ppts
+6ppts
+1ppt
+2ppts
How Elster and Nortek operating margin improved
Operating margins always improved through management actions
Melrose invests: investment is at the heart of our strategy
6
Melrose is a consistent investor in research and development,
investing for the long-term – as if it will own the business forever
Upgrades to production facilities and
warehousing for its Air Quality and
Home Solutions business
Production facility for Air Solutions
Production facility and R&D for HVAC
business
State of the art factory in Newcastle
Doncaster Technology Centre
New balancing pit for the US
Aftermarket business and new
machining centres in Loughborough
and Plzen
Key investment examples
Tooling and production facilities to
support the development of smart
meters
4%
Approximate
R&D investment
(last 5 years)
Over
£230m
Fully expensed
R&D spend
(last 5 years)
Melrose invests in R&D – Elster & Nortek
Melrose protects: an impeccable steward of pension schemes
7
Funding % (IFRS basis) On acquisition
On sale
McKechnie UK Plan
58%
109%
FKI UK Plan
87%
Separated into 3 schemes in June 2013
- residual FKI Plan 95%
- Bridon 99%
- Brush 103%
Melrose has an excellent track record of managing pension schemes
On acquisition
UK Plan
UK Plan
Transferred with
the Bridon
business to
Ontario Teachers’
Pension Plan
On sale
Funding % (IFRS basis)
Retained within
the Brush
business and in
surplus
Transferred into
Honeywell with a
full Honeywell
guarantee
58%
109%
McKechnie UK Plan McKechnie UK Plan
87%
95%
99%
103%
FKI UK Plan Residual FKI Plan Bridon Brush
Transferred into
Honeywell with a
full Honeywell
guarantee
£10.4bn
10.8%
8.8%
7.4%
6.4%
-
100
200
300
400
500
600
700
800
900
1,000
1,100
1,200
1,300
1,400
1,500
1,600
1,700
1,800
1,900
2,000
-
2.0
4.0
6.0
8.0
10.0
12.0
2012 2013 2014 2015 2016 2017
8
The lost opportunity for GKN shareholders
If GKN had achieved its divisional target margins in 2017
trading profit would have been approximately £100m+ to £300m+ higher
Sales (£bn)
Trading profit (£m)
1. Full-year 2017 results as set out in the GKN Preliminary Results announcement (27 February 2018)
2. Arithmetical sum of applying top end or bottom end divisional targets (pre Project Boost) to respective divisional 2017 year-end revenues, adding trading profit for the Other
division of £16m and deducting £27m central costs (calculated as £31 million in corporate costs less the £4 million charge for the one-off North America Aerospace balance
sheet review, as set out on p.11 of the GKN Preliminary Results announcement).
£100m +
£300m +
2
2
1
Top end margin
targets
Bottom end margin
targets
Actual margin
1
Actual 2017 –
adjusted for £112m
North American
Aerospace balance
sheet review
adjustments
Sales
Historical divisional target
trading margins
Aerospace 11% to 13%
Driveline 8% to 10%
Powder Metallurgy 9% to 11%
Includes central costs
GKN’s conflicting strategies
9
GKN plans to sell all but one of its businesses prior to any improvement
The GKN Board has had four conflicting strategies for GKN in the last two months:
Project Boost to improve margins by 2020; proposal for the hasty sale of Powder
Metallurgy
2
Initial “4Ps” strategy; abruptly abandoned without as much as a backward glance
1
Plans for a formal demerger to take place in 2019
3
Proposed sale of Driveline to a foreign buyer, scheduled for Q4 2018
4
14 February
2018
1 February
2018
27 February
2018
9 March
2018
GKN’s transaction with Dana: a bad deal for GKN shareholders
10
Sells the majority of the potential of GKN Driveline before any of the improvement clearly achievable
Forces GKN shareholders to accept shares in a foreign listed company, controlled outside the UK
o Many GKN Shareholders will have no alternative but to sell these shares
Forces UK tax-paying GKN shareholders to pay tax on receipt of Dana shares without any cash payment to fund it
Leaves the remaining GKN Group with approximately £3.0 billion
1
of gross pension liabilities
o Post sale of Powder Metallurgy gross pension liabilities could be approximately 11x
2
Aerospace
management profits
Commits GKN to a lengthy and uncertain process in relation to anti-trust, US tax inversion and other conditions
o Dana shareholders have an option to “walk away” at a cost of only $54 million in the last quarter of 2018
1. The approximately £3.0 billion of gross pension liabilities that will remain with the GKN group following the proposed sale of Dana is calculated by taking GKN’s reported full-year 2017 total gross
pension liabilities of £4,405 million and subtracting the amount of gross pension liabilities that GKN has confirmed will transfer to Dana, being £1,375 million, leaving £3,030 million of total gross
pension liabilities in the remaining group as shown on slide 21 of GKN’s presentation on 9 March 2018;
2. GKN has announced its intention to reduce this liability by using methods such as incentivising pension members to give up some of their benefits, or to leave the scheme altogether. Following
this, it is expected that the gross pension liabilities will reduce to approximately £2.2 billion. This is based on the c. £1,988 million UK liabilities that GKN estimates will remain in the UK scheme,
(p.22 of the 9 March 2018 presentation), plus the £254 million non-UK gross pension liabilities that will remain with the GKN Group following the proposed sale to Dana. The £254 million non-UK
gross pension liabilities is GKN’s reported full-year 2017 non-UK gross pension liabilities of £1,096 million less the £842 million non-UK gross pension liabilities that GKN has confirmed will transfer
to Dana, being £1,375 million of total gross pension liabilities (slide 21 of the 9 March 2018 presentation) less £533 million of UK IAS 19 liabilities that will transfer to Dana (p.18 of the 9 March
2018 announcement). The proposed sale of Driveline and the proposed future sale of Powder Metallurgy assumes that no pension liabilities are transferred on the disposal of the latter;
3. The total gross pension liabilities of £3,030 million that will remain with the GKN Group post the disposals is approximately 11 times the 2017 management trading profit for Aerospace of £283
million (referred to on p.10 of GKN’s announcement on 14 February 2018), assuming that no pension liabilities are transferred with the sale of Powder Metallurgy.
The Dana transaction:
Driveline Sale to Dana Breaks GKN’s Promises
15
Feb.
2018
“Precedent transaction average Driveline
EV/ EBITDA multiple of 8.9x”
9
Mar.
2018
Proposed sale to Dana values GKN
Driveline at only 7.5x 2017 EBITDA
Fact…
“GKN’s current owners should retain 100%
of the benefits of the upside potential in
GKN”
17
Jan.
2018
9
Mar.
2018
GKN's shareholders “to receive 47.25%”
of the enlarged Dana / Driveline business
15
Feb.
2018
“GKN’s leadership team is best placed to
maximise value creation”
9
Mar.
2018
President and CEO of Dana will “be
President and CEO of the Combined
Group”
15
Feb.
2018
“Automotive companies typically have low
leverage because the automotive sector is
inherently cyclical”
9
Mar.
2018
Dana to have pro forma leverage of
“approximately 2.0x net debt (excluding
IAS19 pension deficit) to Adjusted
EBITDA”
GKN Statement…
Knee-jerk sale of Driveline contradicts GKN’s promises in less than four weeks
11
GKN: Dana deal causes Aerospace to be overburdened with liabilities
Proposed disposals would leave behind a GKN Aerospace business
burdened by disproportionate gross pension liabilities
Full-year 2017
1
£4.4bn
£3.0bn £3.0bn
Liability transfer as part
of proposed transaction
Post proposed Dana
transaction
2
Post proposed sale of
Powder Metallurgy
3
Gross pension liabilities
Ratio of gross pension
liabilities to management
trading profit
1. The current total gross pension liabilities of £4,405 million is 5.7 times the 2017 group management trading profit of £774 million as set out in the GKN Preliminary Results announcement ;
2. The £3,030 million (or approximately £3.0 billion) of gross pension liabilities that will remain with the GKN group following the proposed sale of Dana (as set out on slide 10) is equivalent to 69%
of the total gross pension liabilities of £4,405 million currently in the GKN Group. Management trading profit post proposed Dana transaction calculated as £774m full-year 2017 management
trading profit, less Driveline full-year 2017 management trading profit of £394m as referred to on p.18 of GKN’s presentation on 9 March 2018. The £3,030 million of gross pension liabilities is
8.0 times the trading profit post proposed Dana transaction;
3. Following the subsequent disposal of Powder Metallurgy (assuming no pension liabilities are transferred on disposal), the total gross pension liabilities of £3,030 million (or £2,242 million post
GKN’s proposed liability reduction exercise as set out on slide 10) that will remain with the GKN Group is approximately 11 times (or 8 times) the 2017 management trading profit for Aerospace
of £283 million respectively (p.10 of GKN’s announcement on 14 February 2018);
4. UK related gross pension liabilities proposed to be transferred to Dana of £533 million (as set out on p.18 of the announcement on 9 March 2018), are approximately 15% of the UK-related full-
year 2017 total gross pension liabilities of £3,309 million (as set out in the GKN Preliminary Results announcement on 27 February 2018)
15%
Group UK
liabilities
51%
Group trading
profits
UK scheme left overexposed
Most of the gross liabilities
Dana would take are foreign
vs.
12
69% of pension
obligations remain with
Residual GKN (which
accounts for less than
half of GKN's 2017
trading profit)
Limited deficit reduction
measures for Residual
GKN as a result of Dana
transaction
Gross liabilities increased
from 5.7x of trading profit
to approximately 11x
Management trading profit
Assume no transfer of
liability with sale
Plan to reduce
liabilities (if
successful) to c.
£2.2bn – c. 8x
trading profit,
involves
controversial
methods
£774m
£380m
£283m
5.7x
8.0x
c. 11x
c. 8x
Melrose’s proposal to the GKN pension trustees
Formal proposal to the GKN Pension Scheme trustees following a
series of constructive discussions
Comprises potential contributions to the GKN Pension Schemes of
up to c. £1 billion over the Melrose ownership period
£450m of contributions irrespective of any business disposals
£150 million upfront contribution (as announced previously)
Part of this contribution funding the 2016 scheme to
self-sufficiency
£300m in annual contributions over a 5 year period
Double the annual contributions to the 2012 Scheme,
the larger of the two schemes, from £30 million
currently to £60 million
Contributions into the schemes upon the sale of existing GKN or
Melrose businesses.
Capped at an agreed funding level
Represents almost twice the size of the GKN deficit reduction
package of £528m under the alternative sale to Dana
The proposal is in line with Melrose’s original assumptions in respect
of the acquisition and has been taken into account in its approach
Funding the GKN pension schemes for the future as a responsible owner
– in line with our investment criteria
Melrose proposal
c. twice the size of GKN’s
deficit reduction package
£528m
c. £1bn
GKN's plan Melrose's proposal
1. GKN’s £528 million deficit reduction package comprises the following: £124 million special contribution by Dana (as set out in Clause 12.4 of ‘Letter from GKN to Chairmen of the GKN Group
Pension Schemes’, dated 9 March 2018); £105 million additional contribution to the 2012 scheme from non-core disposals (Clause 5.1); the Walnut termination amount of £273.7 million
(Schedule 5); and a £25 million contribution (net of tax) to the 2016 UK Scheme (as set out on p. 18 of the Proposed combination announcement on 9 March 2018)
13
• Minority stake
• Many UK shareholders can’t hold US
paper
• Share flowback
• Long completion risk
• Tax cost implications
GKN: a questionable 503p tomorrow
Aerospace overburdened
A risky 503p – No certainty in delivery
1. SOTP as set out on p. 23 of GKN’s Second Response Circular released 12 March 2018
2. 3.7x average pension liabilities of Aerospace peers (as identified by GKN in its Response Circular dated 15 February 2018) include Meggitt, Rolls Royce, Safran, Latecoere, Heroux-Devtek,
MTU, Senior and Spirit
14
…relies on a number of risks and an
unproven GKN management team
Aerospace
303p
221p
Driveline
Powder Metallurgy
Other items
121p
(142p)
Total
503p
• Execution risk (no previous track
record)
• Jam tomorrow based on 2020
• Pension liabilities: c.8 - 11x the profit
• Valuation derating risk due to heavy
liabilities
• “Gem” business last year … Hasty sale instead
• Exit before improvement
• Any associated tax charge?
• Accounting deficit
• Does not account for funding position
Share price pre approach = 326.3p
Implied valuation assuming Project
Boost achieved…
vs. 3.7x
average for
Aerospace
peers
Option for
Dana with
$54m get
out of jail
card
The Melrose plan
Our immediate actions:
1. Head office to be restructured Simplify management structure
2. Culture to be changed Focus on performance and reduced cost base
3. Focus on profitability not sales Exit unprofitable or low margin sales
4. Investment in operations to produce return Not growth only
5. Management focus back on business Targets there to be achieved – incentives restructured
6. Fast economic-based decision making Speedy, flat, unbureaucratic organisation
15
How to simplify GKN within Melrose
• Reduce number of businesses to concentrate our efforts
• Disposal at the right moment, timing also affected by pension situation
Look to exit non core activities from within Aerospace and Automotive divisions in due course
once improved
Exit Powder Metallurgy in the medium term once improved
In parallel, continue with strategy of exiting Nortek businesses in next 2 – 3 years
Disposals will result in substantial capital returns to shareholders
2
1
3
4
Focus on GKN’s main businesses
16
Summary of the proposal
Proposal to acquire GKN for 467
1
pence per share represents:
‒ Immediate premium of approximately 43% over the closing share price of GKN on 5 January, the last business day
prior to the approach
‒ Value today ahead of GKN’s 10 year high share price of 414.9
2
pence per share on 24 February 2014 with further
significant upside through continued shareholding of the enlarged group
‒ Implied offer value of approximately £8.1 billion
GKN shareholders to receive 1.69 new Melrose shares and 81 pence in cash for each GKN share and retain the GKN final
2017 dividend of 6.2 pence per share
‒ GKN shareholders would own approximately 60% of the enlarged group and would become major participants in
potential future value creation
‒ Net leverage in line with Melrose declared strategy of c 2.5x combined group EBITDA
1. Share prices at 9 March 2018 (the last business day before the announcement of the final offer)
2. Before 5 January 2018, the last business day prior to the approach
17
£1.5bn
£8.1bn
£2.6bn
£4.0bn
Cash element of the Offer
plus Dividend
60% share of
Melrose
60% share of
GKN
Total value
Value of Melrose offer
Shareholders must decide: 467p today + 60% of future value improvement
vs. a questionable 503p
5
tomorrow
467p
1. Share prices at 9 March 2018 (the last business day before the announcement of the final offer)
2. 81 pence per GKN share to be received in cash plus the final 2017 dividend of 6.2 pence payable to GKN Shareholders
3. Based on Melrose’s market capitalisation at 9 March 2018
4. Based on Melrose’s offer as set out in the announcement on 12 March 2018, adjusted for the cash portion of the offer
5. 503p as set out on p. 23 of GKN’s Second Response Circular released 12 March 2018
87p
151p 229p
60% of the future value
Melrose GKN
Per GKN share
2 3 4
18
Appendix
593%
315%
171%
MSCI World A&D MSCI World Auto
Components
GKN
Total shareholder returns (TSR) compared
GKN has underperformed
1. As at close of business on 5 January 2018, the last business day prior to the approach
2. Top 10 TSR performance over the period: Ashtead Group, JD Sports Fashion, Melrose, Micro Focus, Paddy Power Betfair, Dechra Pharmaceuticals, Domino’s Pizza,
Croda, Hill & Smith and Diploma in order of performance
3. TSR calculated since respective acquisition completion dates
Source Datastream
TSR
MELROSE VS. FTSE 350 VS. GKN
Since Melrose IPO – Oct 2003
#3 #227
Ranking
1,2
c 18x higher
TSR
TSR
GKN VS. ITS SECTORS
Since Melrose IPO – Oct 2003
c 3x higher
TSR
c 2x higher
TSR
TSR – GKN VS. MELROSE
Since Melrose acquisitions
3
McKechnie/Dynacast
May 2005
FKI
Jul 2008
Elster
Aug 2012
Nortek
Aug 2016
Melrose
2,223% 1,624% 426% 49%
GKN
168% 190% 70% 8%
c 26% lower
than market
20