Tory MPs only seem to be interested in fighting and plotting over Brexit, but, if they could avert their gaze from Jacob Rees-Mogg temporarily, they’d find that the future of GKN is a subject worth debating. Melrose’s £7bn hostile bid has received disgracefully little political scrutiny.
Sir Vince Cable, for the Lib Dems, and a few Labour MPs are doing their best to generate interest, but they need help. Theresa May said in the Commons on Wednesday that the government “will be looking closely” at the proposed takeover, but she sounded as if she was ticking a box.
GKN is not a BAE Systems or a Rolls-Royce, of course. The government doesn’t hold a golden share and objections to the deal on the grounds of UK national security don’t really work. Indeed, the US department of defense probably has more reason to make a fuss over security since much of GKN’s most sensitive work is US-related. The company supplies cockpit canopies with stealth technology for Lockheed Martin’s F-35 fighters and it is a tier-one supplier to a big US development project, Northrop Grumman’s B-21 Raider heavy bomber.
But the non-security issues raised by Melrose’s bid are also important. Aside from the two UK big firms behind our nuclear submarines, does the government care about industrial ownership? Only 6,000 of GKN’s 56,000 employees work in the UK, but the automotive division is heavily invested in drive systems for electric cars. Would the government be happy if Melrose – or even GKN itself – sold that business to a Chinese buyer? Wasn’t being big in electric cars also part of the business secretary Greg Clark’s industrial vision for the UK?
Some will argue that we should relax about Melrose’s offer. The bidder is a UK-listed company and Cable shouldn’t overstate the asset-stripping charge. Yes, Melrose is a long-term seller, but there is usually an investment phase beforehand. It is not ridiculous to suppose that GKN’s competitive edge might be sharpened under new ownership.
The point, though, is that Melrose’s multimillionaire bosses have so far merely waved their record for enriching shareholders (and themselves) and volunteered only breezy plans for what they’d actually do with GKN.
Politicians could usefully ask detailed questions. For example: GKN is involved in a research programme called “Wings of the future”, with the aim of benefitting the commercial aerospace industry in the UK. Would Melrose commit to that project? If it didn’t, it is easier to imagine Airbus, another partner in that programme, slipping more of its UK wing production to the continent.
That’s what makes GKN very different from companies Melrose has owned in the past – it is bigger and more connected to other parts in the UK industrial chain. And, since Melrose is only ever a medium-term owner, the stakes are high.
There are questions for GKN, too. There’s not much point hammering Melrose for hard R&D commitments if GKN’s panicked board would happily flog the aerospace business to the first private equity firm that shows up. But MPs ought to show an interest – GKN is an important UK company. And a business secretary who can publish a 255-page paper on industrial strategy ought to prove he is awake when it matters most.
TalkTalk’s bad precedent
A profits warning, a severe dividend cut and a £200m equity placing at a 10-year low for the share price. You’d struggle to put a positive gloss on that batch of news, but TalkTalk did its best. Indeed, Sir Charles Dunstone’s outfit made a decent fist of the job by inviting the outside world to admire the pluck and ambition in the plan to build ultrafast broadband connections to 3m UK premises.
Yes, that does deserve applause, even if it’s actually InfraCapital, the infrastructure unit of the fund manager M&G, that is putting up most of the funding. M&G is supplying £400m versus TalkTalk’s £100m. We wait to see if all the cash is actually spent, but betting on next-generation broadband sounds more sensible than TalkTalk’s past haphazard efforts with mobile. If a little more pressure is put on BT Openreach to hurry up with full fibre that’s good, too.
Yet the structure of TalkTalk’s fundraising was inexcusable. It was a placing of shares representing 19.9% of the share price, whereas 9.9% is the accepted norm to protect the interests of all shareholders.
“TalkTalk’s actions are a blatant disregard of the industry-accepted standards,” said the Investment Association, representing fund managers. It’s right. Dunstone has set a bad precedent.