Bottom Line: GKN should be patient

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The Independent Online
GKN has until Maundy Thursday to decide whether to accede to the stock market and up its bid for Westland, or whether to opt for the long game and use its 45 per cent holding as a platform to obtain creeping control in a couple of years' time, when Westland's ACT advantages loom largest.

On the one hand, it may be tricky for GKN to increase its terms after the doubt it has thrown on Westland's stout defence, based on future order books, without looking silly. On the other hand, Westland's operating management will not find the alternative of long, drawn-out attrition to their taste and this may damage the company.

Westland's major institutional shareholders, with more than 25 per cent of the company, have seen various forecasts from respected analysts suggesting that Westland shares are worth 330p against an offer price of 290p, while one has said that, including tax benefits to GKN, the helicopter group is worth 400p a share.

GKN quickly seized on the fact that Westland's forecast of a 15 per cent increase in pre-tax profits to pounds 35m disguised a pounds 500,000 fall in operating profits.

But since Westland's helicopter deliveries are planned to fall from four to just one in the year to September, this decline is not unacceptable even with the benefit of pounds 6m of redundancy and restructuring costs in 1993.

It is also a fair point that a pounds 10m provision for further litigation costs on the 13-year AOI Lynx helicopter wrangle underlines the uncertainty surrounding any likely pay-off from this source.

But this bid is all about prospects and no shareholder, least of all GKN, has anything to lose by staying around.

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