GKN loses the fight. Melrose wins: what next?

The Manufacturer argued against the Melrose bid. We supported the company - and the Unite union - in their objection to the takeover, on the grounds that a break up of the venerable company would be a terrible mistake for the UK - and for the workforce.

A Melrose statement after their vistory did nothing to ally fears that a break-up is on the cards – image courtesy of GKN.

Now, shareholders have said they believe the company’s future is better off in Melrose’s hands than the existing structure.

Given that institutional investors dominate, and that they are always hunting positive short term gains in share value, it was perhaps inevitable Melrose would pip GKN to the post.

There was a strong last-minute PR blitz in the City pages of the national press that gave Melrose extra steam. Admittedly, Melrose is liked in the City as a successful player, returning decent cash to investors.

But that says nothing to those who work at GKN, who now must wonder what the future holds. The union called Melrose ‘asset strippers’.

A Melrose statement after their vistory did nothing to ally fears that a break-up is on the cards. It said the plan is “to improve all of the businesses in GKN, only realising their value once they have reached full potential.”

So no break up now. But break up there will be.

And that causes immense consternation in government as well as in the company’s various divisions, and of course the workforce. Because GKN is involved in aerospace contracts that can have life cycles that run to decades. How can that co-exist with the short-term sell-off strategy that Melrose proposes?

Revenue by segment – image courtesy of GKN.

It is not completely a done deal, yet. The Business Secretary Greg Clark is seeking urgent reassurance from Melrose that nothing they do will jeopardise long-term contracts.

The ADS aerospace trade organisation has said it is up to the government whether this should be referred to the Competition and Markets Authority.

And then there is the national security angle – the American one – in that GKN works on US defence contracts. Uncle Sam will have a view.

Our view is that GKN did itself no favours in the months before the bid. A leadership crisis, plus some clear under-performance in some sectors – but not necessarily those in the UK – made it vulnerable to such a hostile bid.

But the fact remains, as Lord Heseltine was quoted as saying today, “you wouldn’t see this in Germany”. It is a symptom of laissez-faire industrial strategy from successive governments over the years that has meant a fine British company is likely now to be picked over and sold off in bits, sooner rather than later.

The argument is not that companies with problems should be protected from reality. Yes, the company needed to get its act together, and maybe proposing to sell off the Driveline division had the whiff of panic about it. Fighting an attacker on their own ground is rarely successful.

We say it is up to government to set the bar high for takeovers like this, for the sake of the British workforce and for the long term health of our manufacturing base. Great companies like GKN need to be regarded in the corridors of power as national assets, not plums to be plucked for the benefit of City players whose focus is, first and foremost, on quick returns.

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