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Engineering giant GKN has rejected a £7.4bn hostile takeover bid from Melrose Industries.

Turnaround specialist Melrose said it believed it could "deliver significantly greater benefits" to GKN's shareholders than GKN could on its own.

Last week, GKN rebuffed an initial £7bn bid from Melrose because it "fundamentally undervalued" it.

It said the terms of the latest offer were "effectively unchanged".

Melrose is offering 430.1p in cash and shares for GKN, compared with its initial bid of 405p per share.

Under the terms of the offer, GKN shareholders would own 57% of the enlarged group and, according to Melrose, would become "major participants in the potential future value creation in both the GKN and Melrose businesses".

But in its statement on Wednesday, GKN's board said Melrose's proposal would "materially dilute the exposure of GKN shareholders to the meaningful upside opportunities that the board believes are present within the group".

GKN's new management, under chief executive Anne Stevens, was "currently undertaking a series of shareholder meetings to explain why GKN's current owners should retain 100% of the benefits of the upside potential in GKN, rather than handing 43% to Melrose's management and shareholders", it added.

Last year, lower profit margins and cash generation prompted GKN to conduct a wide-ranging review of its business. The company also warned on profits after uncovering problems at its aerospace division.

Earlier this month, 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.

It also announced plans to split its aerospace and automotive divisions into separate companies, although the timing has not been confirmed.

Melrose, which specialises in buying companies and turning them around, said it expected to "re-energise and repurpose GKN's operations".

Shares in car and plane part maker GKN rose by 1.3% on Wednesday morning, although they have subsequently lost most of that ground.

Melrose's share are down by more than 1%.