The fate of 250-year-old British engineering company GKN will be decided on Thursday as shareholders vote on a hostile £8bn bid from turnaround specialist Melrose, which would represent the biggest UK hostile takeover for nearly a decade.
The increasingly bitter takeover battle has pitted one of Britain’s largest industrial groups, which began as a south Wales ironworks in 1759, against a company set up in 2003 with the aim of buying up and turning around underperforming businesses.
Both companies upped the ante in the 24 hours before Thursday’s 1pm deadline for investors to cast their ballots on the controversial deal. Melrose needs 50% plus one share for acceptance and will walk away if it does not get the required support. It will have to make an announcement before 5pm.
In a final appeal to investors, Melrose stressed its commitment to improving “not only GKN, but the UK economy”. But GKN’s chairman, Mike Turner, said the comment “smacks of desperation”.
The government waded in this week in a last-minute intervention to demand binding commitments from Melrose, citing concerns for national security in light of GKN’s work for the armed forces.
In response, Melrose pledged to keep its headquarters and stock market listing in the UK for at least five years, to maintain GKN’s research and development spending and to keep its aerospace division until April 2023.
What is GKN?
GKN is a global engineering business based in Redditch, Worcestershire. It employs nearly 60,000 people across 30 countries.
Once known as Guest, Keen and Nettlefolds, the firm can trace its origins back to 1759 and the birth of the Industrial Revolution in Britain.
Split into three key divisions – GKN Aerospace, GKN Driveline and GKN Powder Metallurgy – the multinational designs, manufactures and services systems and components for most of the world’s leading aircraft, vehicle and machinery makers.
In 2017 it recorded pre-tax profits of £572m.
Photograph: David Davies/PA
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Turner hit out at this “rushed” commitment, saying Melrose had limited its strategic flexibility for the aerospace business and describing the firm as “virtual novices in aerospace”.
The GKN management’s alternative plan is to merge its automotive arm with US firm Dana in a £4.4bn deal, leaving it with its aerospace business.
Melrose has accused GKN of conducting a “hasty fire sale”. The bidder’s chairman, Christopher Miller, said on Wednesday: “Since we made our approach, GKN has repeatedly changed its strategy and contradicted itself. We believe this lack of candour and strategic vision indicates more than simply a management team in denial about its own abilities.”
It also emerged that Labour MP Jack Dromey and Conservative MP Jeremy Lefroy have written to the chief executive of HM Revenue & Customs, Jon Thompson, to complain that a substantial proportion of shares in GKN are being controlled by short-term investors in such a way that they will not have to pay tax if their shares are acquired by Melrose.
MPs urge HMRC chief to investigate shareholder dealings in GKN takeover
The two MPs expressed concerns that a chunk of the engineering group was controlled by arbitrageurs holding shares via derivatives, meaning they were not liable for stamp duty on disposal.
Shareholders are divided, with those publicly backing Melrose, including Elliott Advisors and Aviva Investors, accounting for nearly 10% of the shareholder base, compared with 9% for those supporting the GKN board, including Columbia Threadneedle and Jupiter Asset Management.
Hedge funds, mostly merger arbitrage funds, are estimated to control 20%-25% of GKN’s shares and could tip the balance.
GKN’s troubles began last year when problems at its North American aerospace business prompted a series of profit warnings and led to its chief executive-designate being ousted. The subsequent fall in its share price to 294.3p in early December made the company vulnerable to a takeover bid.
GKN’s new chief executive Anne Stevens, a former senior executive at US carmaker Ford, has spent the last two-and-a-half months fending off Melrose’s hostile bid.
The board was quick to reject its initial bid worth £7bn on 12 January, and has argued that the company is worth more than £5 a share. But Melrose’s “final” cash-and-shares offer on 12 March valued it at 462.7p, based on its share price at the close of business on Wednesday.
GKN or its predecessor firms made cannonballs for the Napoleonic wars, a specialised tank for D-Day and millions of steel helmets for the second world war, as well as tracks for Brunel’s Great Western Railway.
Today its components are used in the Boeing 737 jet and Black Hawk helicopter as well as Volkswagen and Ford cars. It employs 59,000 people worldwide, including 6,000 in the UK.