Greg Clark is awake after all. The business secretary has declared – about eight weeks after he could have acted – that it would be a fine thing if we knew more about how Melrose would manage GKN if its £8bn bid succeeds.
The result is five legally binding commitments from Melrose and one voluntary offer – a pledge to keep GKN’s aerospace division, the most sensitive asset from the point of view of the UK’s long-term industrial ambitions, at least until 2023 unless the government agrees otherwise.
Everybody happy? No. The five post-offer undertakings, as they are called, are completely mundane. They read as if they were invented by Clark to create the appearance of bold action. They merely oblige Melrose to do things it would have done anyway. Keep the HQ in the UK and maintain a listing on the London stock market? Melrose has structured itself that way since it was founded in 2003.
By contrast, chief executive Simon Peckham’s offer to keep GKN Aerospace until April 2023 is genuinely interesting. Assuming this becomes a binding undertaking, Melrose is tying its hands for a while, which may disappoint some of its supporters. GKN’s Driveline automotive division can still be sold at any time – but, since GKN itself is planning to combine that business with Dana of the US, nobody can grumble on that score.
Yet the overall appearance here is of a government minister, whose brief includes “industrial policy”, flapping around ineffectually at the 11th hour when presented with a bid that plainly could have long-term implications for the UK’s engineering base.
He is operating with limited powers, of course. Unless the bid raises national security issues (yet to be formally decided, but unlikely), there is little government can do. But it is bizarre to hear Clark worry about Melrose’s “short-term approach to ownership” and the “broader interests at play” but be reduced, in effect, to pleading with the company to play nice. If the government wants to intervene, it should just propose a proper public interest test. Properly drafted, it would not deter foreign investment.
Melrose – who knows? – might have passed formal scrutiny since it is a UK company anyway and its record on pensions, at least, is sound. The next big bid, however, could be different. A cuddly conversation between minister and bidder, resulting in choreographed letters two days before an offer closes, feels woefully amateurish.
GSK’s £9bn Novartis deal looks like progress
The stars have aligned for Emma Walmsley’s first big strategic move as chief executive of GlaxoSmithKline. Last week the group quit the contest to buy Pfizer’s consumer health division, a deal that could have cost $20bn (£14bn) and was unnerving her own shareholders. Now GSK gets full control of a business it knows well – its own Panadol to Sensodyne consumer business, 63.5% owned – at a price that won’t shock anybody.
Swiss group Novartis’ ability to force its 36.5% interest onto GSK at any point from this month to 2035 has been a major uncertainty ever since the combination was agreed in 2015 as part of a wider deal. Having a potential £8.6bn liability on the books can cramp your style and complicate financing.
In the event, GSK is paying £9.2bn for the minority stake, a price that certainly isn’t cheap but looks OK if profit margins can be boosted to “mid-20s” percentages by 2022 from the current 17.7%. Horlicks, which is only really big in India these days, and a few other brands may be sold to raise a couple of billion and reduce the strain on the balance sheet. Overall, though, the deal should boost GSK’s cash flows and thus offer modest extra protection for the 80p-a-share dividend, investors’ number one obsession. In the long run, Walmsley’s reinvigoration of GSK hangs on the output from the pharmaceutical labs. But the tidying-up of the consumer side is progress.
Green escapes ban – but we should see the report
The Insolvency Service could have taken the view that Sir Philip Green’s sale of BHS for £1 to a plainly unsuitable buyer, the thrice-bankrupt Dominic Chappell, was an act of such extreme irresponsibility that only a disqualification as a company direct would suffice. Green’s attempt to make amends with BHS pensioners, by making a £363m payment, could have been deemed beside the point. Selling to Chappell’s underfunded consortium was crass, stupid and wrong.
Green has emerged without sanction, however. A fair decision? Well, one can guess at the reasoning. Green’s pensions deal was agreed with the Pensions Regulator, which was the official thumbs-up that MPs effectively demanded. But Frank Field is right: the Insolvency Service’s report ought to be published.