GKN LONDON (Reuters) - UK manufacturing investment company Melrose (>> Melrose Industries) is lining up a multi-billion pound loan to back its proposed £7 billion offer for engineering firm GKN (>> GKN), banking sources said.
The loan for the enlarged group, which is being arranged by Lloyds and RBC, will finance the cash consideration of around £1.4bn of the proposed offer and refinance existing debt as well as providing flexibility.
Melrose declined to provide additional information on the cash element of the proposed offer.
Under the 80/20 share and cash offer, GKN shareholders would receive 1.49 new Melrose shares and 81 pence in cash for each GKN share. GKN shareholders would own around 57% of the enlarged company.
Net leverage on the proposed transaction is in line with Melrose’s strategy of around 2.5 times combined group Ebitda, the company said on Monday.
GKN rejected the unsolicited offer on January 12, saying it undervalued the company and its prospects. GKN said it would work on plans to split its business between its aerospace and automotive divisions.
Rothschild and RBC Capital Markets are financial advisers to Melrose on the offer.
Melrose tapped the loan market in July 2016 for a US$1.25bn financing backing its acquisition of US-based ventilation company Nortek and to replace its existing revolving credit facility.
That five-year financing - which was arranged by JP Morgan, Lloyds, Bank of America Merrill Lynch and HSBC - comprised a US$350m term loan and a US$900m revolving credit facility.
(Additional reporting by Claire Ruckin; Editing by Tessa Walsh)
By Alasdair Reilly
