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Melrose tries to soothe business secretary's concerns on hostile takeover bid for GKN

The business secretary is worried Melrose will take a "short-term approach" to ownership of GKN, given its track record of restructuring businesses and reselling them

aerospace
The government wants to ensure GKN's work in UK defence is protected

Melrose Industries PLC (LON:MRO) has written to business secretary Greg Clark to address concerns he has raised on the company’s hostile takeover bid for engineer GKN PLC (LON:GKN).

Clark wrote to Melrose to request the turnaround specialist take a long-term investment approach to its proposed £8.1bn acquisition of GKN to protect the engineer’s work in UK defence.

The letter comes ahead of a Thursday lunchtime deadline for GKN shareholders to vote on the takeover bid.

READ: GKN showing signs of desperation, Melrose claims ahead of verdict on takeover bid

Melrose’s business model is to buy engineering companies, improve their margins and sell them for a profit. The worry is that it will do the same with GKN, putting its future ownership in doubt.

Concerns about short-term approach to ownership

"I recognise that any listed company may be subject to future takeover and so cannot guarantee its ownership indefinitely,” Clark wrote.

"However, I am concerned that a short-term approach to ownership may not be compatible with maintaining the longer-term relationships which characterise the best interests of the defence field.”

Clark said he would expect to see a commitment to continuing ownership and strategic investment for the defence-related business of GKN.

He would also like Melrose to exclude the option of a short-term sale of GKN’s defence business without the consent of the government.

"I am aware that you are separately discussing with the Ministry of Defence the terms of an agreement that would satisfy any concerns that the Defence Secretary may have,” Clark wrote.

Melrose vows to keep UK headquarters in bid to win political support

In an effort to soothe Clark’s worries, Melrose wrote a letter saying it will keep its headquarters in the UK and maintain its listing on the London Stock Exchange for at least five years.

The company will also ensure both of GKN’s automotive and aerospace divisions can continue to use its branding and will spend at least 2.2% of revenues on research and development for five years.

“We have been working hard to ensure we are able to be as clear as possible about our ambition and intentions for GKN, and to make sure that we act in the best interests of all stakeholders should we acquire the business,” Melrose chief executive Simon Peckham said.

“We are British and work in the national interest ... We are wholly committed to securing the UK's national security.”

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