United Kingdom shares were moving in a narrow range on Friday as oil prices dipped and GKN said it had rejected a takeover bid from Melrose Industries.
At the same time, having undertaken an intensive analysis of the economic benefits and costs involved, GKN said it intends to separate its automotive and aerospace businesses, saying the move recognises "the strategic optionality for shareholders in having separate companies with distinct investment profiles and capital allocation policies". GKN shareholders would have held around 57 per cent of the combined group.
"In addition, 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 said.
Its board, in tandem with financial advisers Gleacher Shacklock, JP Morgan Cazenove and UBS, "unanimously rejected" the proposal, which it deemed "entirely opportunistic" and to "fundamentally undervalue" the company and its prospects.
Melrose told the Stock Exchange on Friday there would be significant operational and commercial benefits arising from its ownership of GKN's businesses, "reversing a history of existing GKN management not delivering on margin targets".
Melrose has until 9 February to either make a firm bid or walk away.
Engineering company GKN is long established in the United Kingdom and internationally with aerospace and automotive operations.
The firm issued a profit warning in October over problems at its aerospace division.
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said GKN had "made up for years of lumbering progress in a flash".
On Friday, it said a new two-year strategy called Project Boost would significantly increase cash flow by cutting costs and expenditure along with tighter pricing control.
GKN also announced interim chief executive Anne Stevens would become the new boss of the company with immediate effect after its incoming chief executive left the group in November before taking up his new role.
The takeover bid, made by manufacturing turnaround firm, Melrose, valued the company at £7bn.
Within Friday's announcement, GKN alluded that fourth quarter trading was "in line with expectations" and said it still expects the full year's profit before tax to be "slightly ahead" of last year's figure of £678m. This is before accounting for the previously announced substantial write-offs in the North American Aerospace business.