Melrose pledges to keep its HQ in UK after hostile GKN bid

Melrose has promised to keep its headquarters and listing in the UK, after the government stepped in to seek binding assurances from the turnaround specialist over its hostile £8bn bid for the engineering group GKN.

Greg Clark, the business secretary, has written to Melrose – which has been headquartered in the UK since it was founded in 2003 – to demand a long-term approach, saying the bid had sparked concerns relating to national security given GKN’s work for the Ministry of Defence.

Clark told MPs during a parliamentary debate that stable ownership and financing were critical in the defence sector, and that the “Melrose model has been built on short-term ownership”.

“I have therefore sought a legally binding commitment from Melrose to greater continuity of ownership specific to the defence-related businesses and to exclude the option of a short-term sale of this business without the prior consent of the government,” he said.

“I have also made clear that in the event of a successful bid the Ministry of Defence would look to require a legally binding commitment relating to the management of any defence contracts.”

Pressed by MPs, Clark said he would decide on whether to use his statutory powers to block the takeover – if it is approved by shareholders on Thursday – on national security grounds after taking advice from the MoD and agencies.

The shadow business secretary, Rebecca Long-Bailey, criticised the business secretary for waiting until the “last minute” to get assurances from Melrose. The London-based turnaround specialist made its initial hostile bid two and a half months ago.

She added: “If the government thinks that today’s weak, late and unenforceable assurances from Melrose are sufficient then they are deeply mistaken. There is nothing to assure workers nor put to bed concerns about our industrial strategy and national security.”

Clark’s intervention came before a Thursday 1pm deadline when GKN investors have to decide whether to support the offer from Melrose or the GKN management plan to spin off its automotive business and merge it with the US company Dana, leaving GKN focused on aerospace.

Clark has sought a series of legally binding commitments from Melrose, ensuring that it operates as a UK business, based and listed in the UK; maintains a UK workforce and respects the existing employment rights; continues to pay tax in the UK and to invest in research and development; pays suppliers on time; and safeguards pensioners’ interests.

Simon Peckham, the Melrose chief executive, wrote back to the business secretary, insisting: “We are British and work in the national interest.”

He gave a five-year “legally enforceable” commitment, agreed with the takeover panel, that Melrose would maintain its UK listing and UK headquarters, ensure a majority of its directors are resident in the UK, and maintain GKN’s R&D spending at 2.2% of sales.

Melrose also gave a further commitment – outside the takeover regime – that it would not sell GKN’s aerospace division before April 2023. But it reserved the right to float the business on the stock market, and said it would seek government approval if it was approached by a buyer within the five years.

Several MPs from all the main parties said the five-year commitments were far too short. The Labour MP Adrian Bailey said the industry had investment cycles of 20 to 40 years.

Hedge funds, mostly merger arbitrage funds, are estimated to control 20% to 25% of GKN’s shares, either directly or though derivative contracts. Many of them are expected to accept the Melrose offer but will not pay stamp duty if they hold derivatives in GKN shares.

The Labour MP Jack Dromey said: “If reports are true, it is utterly scandalous that these speculators could decide the future of a 259-year-old engineering icon purely to make a quick buck, and at the same time not even pay stamp duty on their transactions. The government must look into this issue as a matter of urgency.”

Rachel Maclean, the Tory MP for Redditch, said the 260 people working at GKN’s headquarters had been told they would lose their jobs if the takeover goes through.

GKN, one of Britain’s biggest industrial groups, employs more than 59,000 people globally including 6,000 in the UK. It makes parts for the aviation industry, such as the Boeing 737 jet and Black Hawk helicopter, as well as components for Volkswagen and Ford cars.

Steve Turner, the Unite union’s assistant general secretary for aerospace, said: “The assurances that the government claims to have secured are unenforceable, short term and completely inadequate.”

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GKN shares closed 0.3% lower at 430.3p on . Melrose shares rose 1.2% to 223.7p, valuing its cash and shares offer at 465.2p.

If Melrose does not get the required 50% plus one share acceptances by the Thursday deadline it will walk away. The company must make an announcement before 5pm under the takeover code.

Shareholders are divided, with those publicly backing Melrose accounting for nearly 10% of the shareholder base, compared with 9% for those supporting the GKN board..

Unite and the Trade Union Share Owners group (Tuso) wrote to GKN investors this week to warn that a Melrose takeover could “severely damage GKN’s customer base”.

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