The automotive and aerospace parts manufacturer confirmed in an update on Friday that it had received a "preliminary and unsolicited proposal from Melrose" on 8 January worth 405p per share, a 24% premium to its closing price on 5 January of 326p.
GKN, which used to be known as Guest, Keen and Nettlefolds and traces its history back to 1759, has struggled in recent years and its profit warning came after a downturn in its United States aerospace business.
GKN was valued at 5.7 billion pounds at the close of Thursday.
Melrose responded, saying: "Melrose believes that there would be significant operational and commercial benefits arising from Melrose's ownership of GKN's businesses, reversing a history of existing GKN management not delivering on margin targets.The potential acquisition represents a significant opportunity for Melrose to execute on its strategy of maximising inherent value of specialised industrial businesses it owns".
The bid was rejected, but GKN promptly admitted that it would now start the process of a demerger.
GKN also announced on Friday that it had appointed Anne Stevens (left) as chief executive with immediate effect.
It later warned the writedown would be bigger than expected and announced the departure of CEO-designate Kevin Cummings, the head of the aerospace division who had been set to take over the top job this month.
Image GKN's aerospace customers include Boeing
GKN's board dismissed the offer from Melrose in a unanimous decision.
Regarding the rejection of the Melrose offer, GKN said the offer is entirely opportunistic and that the terms fundamentally undervalue the company and its prospects. GKN shareholders would have held around 57 per cent of the combined group.
GKN will separate its aerospace and engineering businesses, giving them distinct investment profiles and capital allocation policies.
Instead, the firm confirmed in a statement on Friday it had made a decision to split out the automotive and aerospace into two separate companies as part of a two-year "transformation programme", ending months of speculation over the firm's future.
While that plan does not yet entail a full separate listing, it could make one possible in the future. The Board will give further details on how it intends to do this in due course.
Market sources suggested companies such as Spirit AeroSystems or Triumph Group could be suitors for GKN's aerospace business.
Prospective bidder Melrose is a turnaround specialist, picking up floundering firms on the cheap with the intention of improving them and selling them off at a higher price. It carried net debt of around £700 million as of June 30th, 2017.