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Shares in engineering giant GKN had a spectacular day on Friday as the company became the focus of a bidding war that has seen some of the world’s biggest private equity funds getting involved. It is not often that we see the price of a FTSE 100 stock being driven so high and so quickly by the sort of bidding struggle that is more reminiscent of the heady, bond-fuelled battles of the 1980s.

GKN shares were up over 20% last week

There are already two large private equity houses involved in the pursuit of GKN. Melrose, a specialist in turning around manufacturing companies, made its original bid for GKN, offering 405p per share, on 8 January. However GKN management were not convinced by the offer and have been mulling a plan to split the company. Melrose is also offering shareholders a 57% stake in the business post-takeover.

But private equity giant Carlyle is also now understood to be putting together its own offer. Some analysts and investors are sceptical about the private equity interest in GKN however. And they are not alone in being concerned that the PE funds might embark on a program of asset stripping.

Vince Cable MP has called on the government to block the bid, saying that Melrose was in the business of “short term financial engineering.”

Tony Burke, assistant general secretary for trade union Unite, added this:

“If Melrose’s bid is successful it will blow a hole in the government’s hope of developing a coherent industrial strategy and signal that government ministers are happy to see yet another British company fall prey to vulture capital.”

Prior to market opening on Monday GKN shares were at 420. GKN shares have been trending gradually upwards from the 300-310 level already, but as excitement about a possible bidding war has increased, so we saw a rapid rise last week.

GKN management reaction

GKN’s own management team have said they are looking at separating the company’s aerospace and automotive engineering businesses, to achieve what it calls “significant operational and commercial benefits.”

GKN CEO Anne Stevens has been confirmed as the group’s chief executive having served as its interim chief executive previously.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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