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 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.
His intervention came ahead of 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 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; continues to invest in UK research and development, training and apprenticeships; pays suppliers on time and looks after current and future pensioners to the satisfaction of trustees and the Pensions Regulator.
Simon Peckham, Melrose’s chief executive, wrote back, insisting: “We are British and work in the national interest.”
He gave a five-year commitment that Melrose would maintain its UK listing and UK headquarters, ensure a majority of its directors are resident in the UK and that it would keep the aerospace and automotive divisions under the GKN name. He also said the group would maintain GKN’s R&D spending at 2.2% of sales.
But the Unite union said the government’s move “may be too little too late”. Steve Turner, the union’s assistant general secretary for aerospace, said: “The assurances that the government claims to have secured are unenforceable, short-term and completely inadequate.”
GKN shares were up 1.3% to 437.3p on Tuesday. Melrose shares rose 1% to 223.5p, valuing its cash and shares offer at 464.9p.
Shareholders are divided, with those officially backing Melrose accounting for nearly 10% of the shareholder base, compared with 9% for those supporting the GKN board. Elliott Advisors and Aviva Investors support the Melrose takeover, while Columbia Threadneedle and Jupiter Asset Management are backing GKN’s plan.
Unite and the Trade Union Share Owners group (Tuso) have written to GKN investors, warning that a Melrose takeover could “severely damage GKN’s customer base”. They noted Airbus, the company’s largest customer, had said that if the takeover goes ahead it would be “practically impossible” for it to give GKN any new work because this would require a commitment to long-term investment and strategic vision.
Unite and Tuso said those concerns were privately shared by other major GKN customers. They also argued that Melrose did not have the specialised skills or experience needed to run GKN successfully and that its plans for splitting the company would weaken it.