We are NOT asset strippers, we’re renovators and improvers
In an unashamed defence of its £7billion bid for GKN, Melrose boss rejects claims that he is just a greedy corporate raider out to plunder a business giant
IF YOU are to believe the hype, the four men behind Melrose, the company that has launched a hostile £7billion bid for historic engineering firm GKN, are a group of rapacious predators lurking in a Mayfair lair, plotting the pillage of a great British business.
It’s true their offices on Curzon Street are in one of the poshest parts of London, but the rooms are functional and devoid of grandeur.
Until its recent audacious bid for GKN, few people outside of the City would have heard of Melrose, let alone Simon Peckham, 55, and his colleagues. Since they turned their guns on the venerable giant, however, every aspect of the company’s operations has been up for scrutiny.
They have been denounced as corporate raiders by Jeremy Corbyn at a manufacturing conference and they have even been savaged for wearing expensive Hermes ties, which cost £160 each.
Peckham, the chief executive, is sporting a slightly crumpled shirt and trousers, with no tie at all. Has he hidden his posh neckwear to make himself seem more down-toearth? He fishes out his tie and brandishes an Austin Reed label. ‘It is silk, not polyester, I admit that,’ he says as he puts it on, along with a jacket, for the photoshoot.
It is not surprising that his bid for GKN has put him under a spotlight. The £7billion assault is the first hostile takeover attempt on a FTSE100 company in almost a decade, since Kraft of the US took over Cadbury in 2010.
For those with long memories, Melrose might be seen as a modern incarnation of Hanson, the legendary conglomerate of the 1980s.
It was set up by chairman Christopher ‘Jock’ Miller, who previously worked with the late Lords Hanson and White, the arch-predators of their day. Other members of the top four are deputy chairman David Roper and finance director Geoffrey Martin.
If the quartet succeeds in taking over GKN and improving its performance significantly, they will become even more stupendously rich than they already are.
But while other executives squirm and wriggle when confronted with questions on whether they are worth their large pay packets, Peckham is unapologetic.
‘If the GKN deal goes well, then we get paid extremely well. We are not backing off from that – it is what it is and we don’t hide from it.’
By extremely well, he means he and his three top colleagues could share £285million – on top of a £160million payday last year. ‘We don’t get paid money just for being bureaucrats. We created this business. We take entrepreneurial risk and shareholders respect that.’ The top four between them own a 3.7per cent stake in the company, which floated on the stock market in 2003 with a value of just £13million. It is now worth £4.4billion, after returning about £4.5billion back to investors.
‘I know we are extraordinarily privileged but we are paid as owners, not managers. If we don’t create value, we get nothing. I get some executives saying, “You lucky b ****** – you have all this money,” and I say, “Well, you can go and start your own business too.”
‘There is nowhere for us to hide, the four of us have put ourselves up there, we have gone for this deal, we are in the public eye.’
It’s easy to depict Melrose as a bunch of money-mad financial engineers trying to get their hands on a real engineering business and milking it dry. The reality isn’t quite that simple.
Despite the Hanson connection, its business model is about taking underperforming companies, investing in them and then selling them once they have been revamped. ‘We are not asset strippers, we are renovators and improvers. We don’t load businesses with debt. We don’t own businesses forever, we do sell and give the money back to shareholders, then we do it again.’
Melrose’s willingness to make good on GKN’s huge pension deficit has also been called into question. Peckham says: ‘Every pension scheme that has come into our ownership has left in a better position.’
The quartet has done five deals since Melrose floated in 2003. They include engineering group FKI, Elster, a German smart meter business, and Nortek, an American ventilation and security specialist. The average return on investment has been an impressive 25 per cent.
There have been mistakes, namely problems at electricity generator maker Brush, which pushed Melrose into a pre-tax loss for 2017. ‘What’s gone wrong at Brush is we got caught by the market. But we are not going to run away from this situation,’ says Peckham.
He gives short shrift to criticisms that the bid for GKN is against the national interest. ‘From a military point of view GKN is not in the top 100 suppliers to the Ministry of Defence,’ he says. He adds that GKN’s defence, as he sees it, amounts to an admission that it has not been run as well as it should have been.
‘GKN has basically admitted that its business has been mismanaged and said they are going to start managing it properly now.
‘With this bid, shareholders have a choice between two management teams. Who do they think will be better at running GKN?
‘If you look at our total return for investors, we are the third highest in the FTSE350 – we are a really good British success story and we have done it properly, we have paid our tax and invested in our businesses.’
The roots of Melrose lie back in the late 1980s when Miller and Roper set up an earlier business, Wassall. Peckham, who at that time was a young lawyer, worked on its stock market float and then joined the company.
By the 1990s, they sold Wassall to private equity giant KKR.
Peckham went to work at RBS and the other two spent their time improving their golf.
They got back together to create Melrose at Peckham’s 40th birthday party. He has, he says, been watching GKN since Melrose was set up 15 years ago. At any one time, he has a list of around 30 to 40 companies that might be bid prospects.
Isn’t the engineering giant a whole league up in size and complexity from the deals they have done so far? Might Melrose be biting off more than it can chew?
‘The complexity is of their own making,’ snorts Peckham. ‘We believe businesses run simply are run best.’
If Melrose succeeds, it is likely to strip out layers of top management and put divisional heads in charge. ‘We want to give power back to the people who really run the business, to liberate them,’ Peckham says. He first approached GKN in early January, and met chairman Mike Turner and chief executive Anne Stevens at JP Morgan’s offices in Canary Wharf hoping they would agree a deal.
When that failed, Melrose went ahead regardless. ‘When people say it’s a hostile bid, I wonder: hostile to who?
‘The board of GKN may not have appreciated our approach, but it is not hostile to the owners of the business who will see it improve.’
If the bid fails, he says the Melrose boys will go to the pub, drown their sorrows and go back to their list to look for another target.
And what would they do if someone turned the tables and came bidding for them?
‘Sell, if it is in the interests of shareholders. As long as it was the right price, we would send the limo round.’
There is nowhere for us to hide – we have gone for this deal and we are in the public eye
We want to give power back. When people say it’s a hostile bid, I wonder: hostile to who?