As hostile bids go, it’s hard to beat Melrose Industries Plc’s assault on GKN plc for fisticuffs. But even with a raised offer and a fresh barrage of rhetoric, the turnaround specialist hasn’t landed a killer blow on the British engineer.

Melrose on Monday made a raised take-it-or-leave-it offer worth 7.7 billion pounds ($10.7 billion) for the aerospace and auto parts group. It formally declared this “final” and so can’t raise its bid. Forget a sweetener in return for the support of GKN’s board.

This is a risky strategy as the offer isn’t a knock-out. Melrose says it would pay 1.4 billion pounds in cash plus shares worth 6.3 billion pounds based on their trading price on Monday morning. At first glance, this looks attractive. It’s 37 percent above where GKN shares were in early January, just before Melrose’s initial takeover approach -- a respectable takeover premium.

At 447 pence per share, the offer is also about 3 percent above where GKN’s share prices are trading. The narrowing spread between the offer and target price is the market’s way of saying it sees a higher chance of Melrose winning the fight.

But it would be a huge achievement if Melrose secured GKN at this level. GKN’s own plan promises to add more value.

A deal to sell the auto business to Dana Inc. in the U.S. would leave investors with an equity stake worth 2.6 billion pounds and cut net debt, including the pension deficit, to roughly 500 million pounds. The powder metallurgy business, currently up for sale, could fetch about 1.8 billion pounds, reckon analysts at Peel Hunt. The remaining aerospace business would be worth around 4.2 billion pounds, on a 10 times Ebitda multiple in line with peers. That adds up to 8.1 billion pounds or 472 pence a share. 

What’s more, if the upside in GKN’s business exceeds this, shareholders would get to keep more of that by rejecting the bid rather than sharing the gains with Melrose investors. For its part, GKN has provided an analysis valuing it at 503 pence a share.

Melrose is painting its bid as patriotic because it keeps GKN as part of a large, U.K. company. But it is not giving binding undertakings that it will never sell any GKN asset to foreign buyers. GKN’s constituent parts are going to find new owners at some point, whatever the outcome of this fight.

GKN’s problem is that the market simply doesn’t believe it will create the value it has promised. The share register includes Melrose holders and short-term hedge funds who want a deal. There are less than three weeks to go before investors must decide on Melrose’s offer. Maybe a high-priced deal for the powder metallurgy unit in the coming days -- or even for the aerospace business  -- could still thwart the predator’s ambitions. Melrose hasn’t won this yet.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

To contact the author of this story: Chris Hughes in London at chughes89@bloomberg.net.

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net.

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