Melrose Industries Plc · LSE:MRO

Melrose Industries — Merger or Acquisition (March 2018)

20 slides from Melrose Industries's merger presentation, March 2018

  1. Slide 1: Final offer for GKN – unlocking the potential

    Melrose Industries PLC Final offer for GKN – unlocking the potential March 2018

  2. Slide 2: Disclaimer

    Disclaimer IMPORTANT: YOU MUST READ THE FOLLOWING BEFORE CONTINUING. THIS PRESENTATION CONTAINS INSIDE INFORMATION. NOT FOR RELEASE, PRESENTATION, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN, INTO OR FROM THE UNITED STATES, CANADA, JAPAN, AUSTRALIA, SOUTH AFRICA OR ANY JURISDICTION WHERE TO D

  3. Slide 3: Highlights

    Highlights  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

  4. Slide 4: Melrose's model: consistently creating high shareholder returns

    Melrose’s model: consistently creating high shareholder returns Melrose has consistently generated significant financial returns Total shareholder investment £ billion Total money invested (3.64) Generated net shareholder Total money returned to investors 4.35 value of £4.9bn Net shareholder investm

  5. Slide 5: Melrose delivers: the Melrose record for margin improvement

    Melrose delivers: the Melrose record for margin improvement Melrose underlying operating margin improvement How Elster and Nortek operating margin improved +9ppts 24% (>30% improvement) +1ppt 22% (>70% improvement) (>60% improvement) +2ppts 18% 1 16% (>40% improvement) +6ppts 15% 15% (>50% improveme

  6. Slide 6: Melrose invests: investment is at the heart of our strategy

    Melrose invests: investment is at the heart of our strategy Key investment examples  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 Melrose invests in R&D – Els

  7. Slide 7: Melrose protects: an impeccable steward of pension schemes

    Melrose protects: an impeccable steward of pension schemes On acquisition On sale 109% Funding % (IFRS basis) Transferred into 58% Honeywell with a full Honeywell guarantee UK Plan McKechnie UK Plan McKechnie UK Plan 99% 103% 95% 87% UK Plan FKI UK Plan Residual FKI Plan Bridon Brush Transferred wit

  8. Slide 8: The lost opportunity for GKN shareholders

    The lost opportunity for GKN shareholders Sales (£bn) Trading profit (£m) 12.0 2,000 Historical divisional target 1,900 trading margins £10.4bn 1,800 Aerospace 11% to 13% Sales 1,700 10.0 Driveline 8% to 10% 1,600 Powder Metallurgy 9% to 11% 1,500 Includes central costs 1,400 8.0 1,300 2 Top end mar

  9. Slide 9: GKN's conflicting strategies

    GKN’s conflicting strategies The GKN Board has had four conflicting strategies for GKN in the last two months: 1 February 1 Initial “4Ps” strategy; abruptly abandoned without as much as a backward glance 2018 Project Boost to improve margins by 2020; proposal for the hasty sale of Powder 14 February

  10. Slide 10: GKN's transaction with Dana: a bad deal for GKN shareholders

    GKN’s transaction with Dana: a bad deal for GKN shareholders The Dana transaction:  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 Shar

  11. Slide 11: Driveline Sale to Dana Breaks GKN's Promises

    Driveline Sale to Dana Breaks GKN’s Promises GKN Statement… Fact… 17 “GKN’s current owners should retain 100% 9 GKN's shareholders “to receive 47.25%” Jan. of the benefits of the upside potential in Mar. of the enlarged Dana / Driveline business 2018 GKN” 2018 15 9 President and CEO of Dana will “be

  12. Slide 12: GKN: Dana deal causes Aerospace to be overburdened with liabilities

    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  69% of pension obligations remain with Gross pension liabilities £4.4bn £3.0bn £3.0bn Residual GKN (which Liabil

  13. Slide 13: Melrose's proposal to the GKN pension trustees

    Melrose’s proposal to the GKN pension trustees Melrose proposal  Formal proposal to the GKN Pension Scheme trustees following a c. twice the size of GKN’s series of constructive discussions deficit reduction package  Comprises potential contributions to the GKN Pension Schemes of c. £1bn up to c.

  14. Slide 14: GKN: a questionable 503p tomorrow

    GKN: a questionable 503p tomorrow Implied valuation assuming Project …relies on a number of risks and an Boost achieved… unproven GKN management team • Execution risk (no previous track record) vs. 3.7x • Jam tomorrow based on 2020 average for Aerospace 303p • Pension liabilities: c.8 - 11x the prof

  15. Slide 15: The Melrose plan

    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 grow

  16. Slide 16: How to simplify GKN within Melrose

    How to simplify GKN within Melrose Focus on GKN’s main businesses 1 Exit Powder Metallurgy in the medium term once improved • 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

  17. Slide 17: Summary of the proposal

    Summary of the proposal  Proposal to acquire GKN for 4671 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 414.92 pence per shar

  18. Slide 18: Value of Melrose offer

    Value of Melrose offer 60% of the future value Per GKN share 87p 151p 229p 467p Melrose GKN £4.0bn £8.1bn £2.6bn £1.5bn Cash element of the Offer 60% share of 60% share of Total value plus Dividend 2 Melrose 3 GKN 4 Shareholders must decide: 467p today + 60% of future value improvement vs. a questio

  19. Slide 19: Appendix

    1 = Appendix

  20. Slide 20: Total shareholder returns (TSR) compared

    Total shareholder returns (TSR) compared GKN has underperformed TSR TSR MELROSE VS. FTSE 350 VS. GKN GKN VS. ITS SECTORS Since Melrose IPO – Oct 2003 Since Melrose IPO – Oct 2003 Ranking1,2 #3 #227 c 18x higher 3,019% TSR c 3x higher TSR c 2x higher c 26% lower 593% TSR than market 315% 231% 171% 17

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