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Turnaround specialist Melrose spins off auto business in GKN split

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Melrose Industries will spin off its GKN automotive division as a new UK-listed company as it spins off one of the UK’s oldest engineering businesses.

FTSE 100 Turn Round Specialist, which bought the auto and aerospace parts maker in an £8 billion deal in 2018, is expected to confirm the move on Thursday.

Under the plan, Melrose will separate GKN’s automotive and small powder metallurgy businesses from its aerospace division through a stock split, according to people familiar with the matter.

The car company, one of the world’s leading suppliers of car driveshafts, aims to list on the London Stock Exchange next year under an undecided name.

Melrose will retain ownership of GKN Aerospace, a leading “Tier 1” supplier of airframe structures and engine components to aerospace and defense companies such as Airbus and Rolls-Royce.

The move will give the automotive division the freedom to raise capital to pursue acquisitions across the sector. This is expected to consolidate as suppliers come under greater pressure in the transition to electric vehicles.

About half of the new orders for GKN’s driveshaft business are for electric models, which are produced in the same plant as the engine vehicles.

The company says it expects 45% of its work to be for electric vehicles by 2025, with higher margins than traditional contracts.

A third of the company’s automotive business is in Europe, with the majority in the United States, where the transition to electric vehicles is expected to be slow, and in China.

Melrose, which had a market capitalization of £5.6 billion at the close of trading on Wednesday, could fall out of the FTSE 100 Index as a result of the split.

The split-up car group will account for around two-thirds of Melrose’s current projected revenue of over £7.5 billion in 2022.

Liam Butterworth, Chief Executive Officer of GKN Automotive, will be responsible for the split business, and another chairman will be appointed.

The merger completes the dismantling of GKN, one of Britain’s oldest engineering names, which traces its roots to the establishment of ironworks in South Wales in the late 1700s.

Melrose, a turn-round specialist with a loyal following in Citi, acquired the company in 2018, sparking fears from critics that it might dismantle the conglomerate.

The company, led by CEO Simon Peckham, claims to identify underperforming manufacturers, restructure them and sell them. Over the years, it has delivered significant benefits to management and shareholders.

Under the terms of the acquisition, Melrose promised the government not to sell its aerospace business for five years. That pledge expires next year.

Peckham has previously said the group will consider splitting GKN at the appropriate time, and has indicated it may make separate proposals for either the automotive or aerospace businesses.

The company said in March that the turnaround in its automotive business would be nearly complete by the end of the year.

The recovery in the aerospace sector, which has been affected by the downturn in the airline industry due to the new coronavirus, has been slow, but Melrose told investors in June that restructuring efforts are progressing well and is bullish on the business. He said he does.

At the time, we expected annual revenue growth for the aerospace business to be 7% through 2030, with an accelerated recovery through 2025.