FTSE 100 group GKN, which makes parts for F-15 fighter jets and carmakers such as Porsche, was left reeling last year by a writedown at its US aerospace business, which led to it ditching its incoming chief executive Kevin Cummings.
Board member Anne Stevens, who took charge on an interim basis, has now become chief executive and is overseeing a restructuring of the group to boost its performance.
GKN received an “unsolicited” cash and shares proposal from Melrose valuing its shares at 405p this week.
A deal would lead to GKN investors owning 57 per cent of the enlarged company, with Melrose shareholders holding 43 per cent.
Its board unanimously rejected the “opportunistic” proposal as “fundamentally undervaluing the company and its prospects”, adding: “The proposal would materially dilute the exposure of GKN shareholders to the meaningful upside opportunities that the board believes are present within the company.”
GKN shares soared 87¼p to 420p amid hopes of a sweetened offer from FTSE 250 firm Melrose, which buys businesses it sees as underperforming and invests in them before returning value to shareholders when sold. Melrose shares rose 12½p to 227½p.
Melrose argued there would be “significant operational and commercial benefits from Melrose’s ownership of GKN’s businesses, reversing a history of GKN management not delivering on margin targets”.
It added: “Melrose believes that shareholder value would be maximised by it significantly improving the business prior to any separation.”
It has until February 9 to announce a firm intention to make an offer or walk away.
GKN, which dates back to 1759 and used to be Guest, Keen and Nettlefolds, has a 58,000 workforce in 30 countries.
It made pre-tax profit of £678 million on sales of £9.4 billion in 2016 and said its two-year transformation programme would “deliver a step change in profit margin and cash generation”.