Why Melrose’s £8bn bid for GKN could fail

Global markets continue to advance after Friday’s US employment numbers effectively gave investors the green light to buy equities. The combination of spectacular employment growth with no sign of inflationary wage pressures is the perfect scenario for markets and has seen them move higher.

Recent market wobbles have all been connected to the possibility of stronger US inflation which could cause the Federal Reserve to raise rates faster than the market anticipates and end the nine-year equity party.

Confirmation that there is a resurgence in the number of Americans joining the labour force, increasing the participation rate, is a huge boost to US production prospects and growth without the downside risk of wage inflation.

Not too hot, not too cold; Goldilocks appears to be alive and well.

The muted market reaction of the GKN (GKN) share price to the increased offer of 467p by Melrose (MRO) is the strongest indication yet that Melrose might not get its way and that GKN’s management and their Project Boost strategy is winning.


Source: interactive investor      Past performance is not a guide to future performance

Source: interactive investor      Past performance is not a guide to future performance


The robust efforts GKN has taken to protect itself from the hostile bid, including the proposed disposal of its Driveline business to Dana, combined with the comments from Melrose that their offer will “not be increased under any circumstances” is leading investors to conclude that GKN has won this battle, at least for now.

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