GKN warns on pension fund pressure if Melrose hostile £7.4 billion bid wins

● Engineering group says it may have to pay more in if takeover attempt succeeds

GKN, the engineering group laid siege to by a £7.4 billion takeover bid from Melrose, has given warning that it may have to pay more into the company’s pension fund if the offer is successful.

The target group’s board said yesterday that the turnaround specialist’s hostile bid would saddle the business with higher debts, which may have “implications” for the amount of money needed for the pension scheme.

Pension trustees can demand more money is paid towards a company’s retirement scheme if they decide that the risk posed to future funding has increased.

GKN, in a pension scheme update to the stock market, said the group’s net “leverage” would be “materially higher” if the takeover was successful.

“This may have implications for the covenant strength of the company, the level of the technical provisions deficit and therefore the level of immediate and/or long-term cash funding requirements,” the group said.

The latest twist in the takeover tussle follows a weekend report from the Daily Telegraphthattheukgovernment has ordered senior officials to assess whether the takeover is in the public interest.

GKN, which makes aerospace and automotive parts, rejected Melrose’s last bid on 18 January, claiming the US suitor had made “fake” claims and “misleading statements”. It also said the suitor had never been involved in a turnaround of a business as large as GKN.

GKN earlier this month rejected Melrose’s claim that the 430.1p cash-and-shares price offered represented a 32 per cent premium to the price of GKN’S stock on the last business day before the approach was announced.

It said that the suitor only reached this premium figure by including the rise in the price of Melrose shares since the bid was made.

Melrose has swooped on GKN after profit warnings in October and November following problems at its US aerospace division sent shares tumbling. GKN, which employs around 58,200 staff and makes wing tips for Airbus, also ditched its incoming boss in November less than two months before he was due to take the top job as it warned over another hit in its troubled US plant.

The Redditch-based firm has responded to the unwanted attention by vowing to separate its aerospace and automotive units and hiring a new chief executive.

One analyst commented: “This bid has increasingly become no holds barred, and the language quite robust as it has unfolded.”