UK defence giant ‘may be saved’
THE battle to save defence giant GKN from a hostile takeover received a triple boost yesterday.
In a dramatic intervention, a top boss at Airbus said that it would be ‘practically impossible’ to work with GKN if it were bought out by predator Melrose.
Next, a City firm became the first big investor in the 259-year-old UK company to publicly reject the takeover.
Finally, MPs from all parties condemned Melrose’s £8.1billion offer and called on ministers to block it. One accused Melrose of asset-stripping.
As the single biggest customer of GKN, Airbus’s last-minute broadside could be critical. City insiders say that 2,000 GKN jobs depend on making wing tips and
other parts for Airbus. Tom Williams, chief operating officer of Airbus’s commercial aircraft unit, said yesterday that the short-term approach of Melrose was not suited to the aviation sector.
He said: ‘The industry does not lend itself to shorter-term investment, which naturally reduces research and development budgets and limits vital innovation. It would be practically impossible for us to give any new work to GKN under such an ownership model when we don’t know who the long-term investor will be.’
Should Airbus decide not to use GKN in future, it would force the aerospace giant to overhaul its supply chain.
This would open the door to the French and Spanish arms of Airbus, who are said to be desperate to take all of the firm’s engineering overseas. It would cost an estimated 10,000 Airbus jobs in the UK.
Opposition to the deal was growing last night as Jupiter Asset Management, which has a £73million stake in GKN, became the first investor to publicly come out against the Melrose offer.
Steve Davies, who heads its UK Growth Fund, said the intervention from Airbus was significant, adding: ‘It is definitely something that investors need to factor into their thinking.’
He backed GKN’s plans to turn around the business as an independent firm, saying: ‘I don’t see the need to dilute this value creation by accepting the Melrose proposal, which brings with it pension risk, balance sheet concerns and potential issues with how GKN’s customers might react to the change of ownership.’
Another major investor told the Financial Times that it and other shareholders were preparing a public statement in favour of GKN.
MPs highlighted the defence giant’s vital importance to UK industry in a Westminster Hall debate yesterday.
Rachel Maclean, the Tory MP for Redditch in Worcestershire, where GKN is based, said: ‘I am not convinced that this takeover bid is in the best interests of the company or the industrial strategy of the country or indeed the shareholders.’
Labour MP Jack Dromey said: ‘Airbus is a world-class company that invests for the long term. GKN is a reliable partner – the last thing they want is a shortterm asset stripper. Shareholders have to take note because Airbus accounts for about £700million of GKN’s work.’
Howard Wheeldon, an industry analyst, called Airbus’s intervention ‘a game changer’, saying: ‘A company that makes the sort of things GKN makes needs to have very stable relationships and the customers need to know a change of ownership is not going to change the way things are done.
‘It changes the whole dynamic because it is making those who might see Melrose as the way forward, they are beginning to realise that the risks of doing that are far, far, greater than they might have imagined.’
There are now less than two weeks to decide the fate of GKN, which employs around 6,000 people in the UK and 58,000 around the world.
It has been at the centre of the UK’s biggest and most bitter takeover battle in a decade following Melrose’s swoop at the start of January. The bid has been rejected by GKN’s board as cheap and opportunistic, while Melrose’s strategy of selling firms on within three to five years has raised concerns.
The Government is considering whether it should intervene, given the firm’s work on the US-UK joint strike fighter F-35 and Eurofighter Typhoon.
Paul Everitt, of defence industry trade body ADS, said he had no comment on who would be the best owner of GKN, but stressed that Airbus’s concerns about short-termism in the industry would be shared.
Christopher Miller, Melrose’s chairman, said: ‘We are certain that GKN’s new strategy of hasty short-term business breakup will not benefit the long-term requirements of customers. Under Melrose, shareholders and customers will be able to enjoy a considered and longer-term process of value creation, investment and business enhancement, which is clearly not an option under continued GKN ownership.’
GKN’s Mike Turner said: ‘As we have previously stated, and as these comments from Airbus reinforce, winning new business in our markets would be more difficult if customers were uncertain as to the identity of future long-term partners.’