Melrose wins battle for £8bn group – but takeover war continues

The Government may still intervene in the ownership battle for GKN despite turnaround specialist Melrose securing the support of a majority of the company’s shareholders.

Melrose had received valid acceptances representing 52.4% of the voting rights of GKN in favour of its £8bn bid before the deadline after what has been one of the fiercest takeover battles in recent City history.

GKN, the 250-year-old global engineering business headquartered in Redditch, employs around one-tenth of its 60,000 staff in the UK. However it is seen as having an important role to play because of its defence contracts and importance to the supply chain.

Business Secretary Greg Clark had secured some assurances from Melrose in the final days of the takeover battle, including a commitment to keep GKN’s headquarters in the UK and to not sell its aerospace business for at least five years.

However Labour leader Jeremy Corbyn and the Daily Mail newspaper unusually found themselves on the same side with their public opposition of Melrose’s plans.

You know things are bad when the Daily Mail calls out a rigged economic system.

The Tories have put the interests of city speculators over people's jobs.

Labour would have stopped the takeover of GKN and in government we'll make our economy work for the many, not the few. pic.twitter.com/J8U7rmK9BI

— Jeremy Corbyn (@jeremycorbyn) March 29, 2018

The Defence Secretary, and South Staffordshire MP, Gavin Williamson is also reported to have concerns, with speculation that he will make the case in Cabinet for the deal to be blocked.

West Midlands Mayor Andy Street was lukewarm in his response and has called on Melrose to meet with him to provide reassurance of their commitment to the region.

The Conservative politician said: “The result of today’s vote by the shareholders of GKN is now known, however the real decisions on the future of the company are still to be made.

“Therefore, I’m asking the new owners for an early meeting to ensure their commitments to the West Midlands are honoured.

“That means protecting current jobs, pensions and future investment in research and development. This will ensure GKN continues to be a long-term success story in the region.”

The Institute for Economic Affairs’s chief economist Julian Jessop has made the case for the Government not intervening in the ownership of GKN. He said: “In reality, these conditions are not particularly onerous. They are the sort of things that a well-managed business would do anyway, in any sector, and the five-year horizon is consistent with the usual timescale under which companies like Melrose operate.

“But there is also a cost to government intervention, especially one that puts additional barriers in the way of market forces. The real short-termism here may be the political pressure to protect companies from change when what they actually need is fundamental reform, which would benefit all concerned.”

Christopher Miller, chairman of Melrose

“We are looking forward to working with GKN’s talented workforce and to delivering for customers and all stakeholders. Melrose has made commitments as to investment in R&D, skills and people and we are very excited about putting these into action.

“Let me assure you that GKN is entering into very good hands.

“We would like to thank our shareholders for their continued support of the Melrose strategy thus far. We are full of enthusiasm as we begin this next stage of the Melrose story and look forward to creating substantial value for our shareholders, old and new.”

GKN, which was trying to execute its own plan which included the sale of part of the group to Dana, has now admitted defeat. In a statement to the stock market, it said: “The Board of GKN now intends to work with Melrose to ensure the success of the enlarged company, in the interests of all stakeholders, including employees, customers and shareholders.”

John Colley, professor of practice in strategy at Warwick Business School, said: “The real winners are the investment banks, financial PR consultancies, and the media who are treated to a bitter public fight.

“GKN shareholders should also win out as Melrose’s management try to keep their promises. Employees will lose out as there will be significant job losses around the world.

“The risk is Melrose’s inexperience of running such a large business and a new management team which has little knowledge of the business and has not had access to due diligence.”