Fears over engineer’s £2billion black hole

Pension guardians issue rare warning over sale of GKN to asset strippers

THE guardians of the GKN pension scheme have fired a warning shot to predators circling the firm over the gaping black hole in its retirement pot.

The embattled engineer, which has already rejected one £7bn takeover offer from turnaround group Melrose, has run up a pension deficit of £1.8bn.

In a warning to Melrose and other suitors yesterday, the trustees said potential buyers should be aware of the shortfall, and stand ready to plug the gap.

It is rare for trustees to speak out publicly during takeover battles, particularly at such an early stage, and underlines concerns that pensions are not seen as a priority during negotiations.

High Street chain BHS collapsed with a £571m black hole in its pension fund soon after it changed hands – plunging the retirement of thousands of workers and former workers into doubt.

With analysts expecting Melrose to raise its bid for GKN, and rumours of a counter-offer coming from private equity, the pension trustees went on the offensive.

They pointed out that the deficits of two GKN pension schemes in the UK – which have 32,337 members including 17,333 former staff who have already retired – have reached £1.1bn.

Including its overseas operations, there is black hole of £1.8bn in the fund. The trustees said any concerns about the creditworthiness of a new owner would force them to demand they stump up more cash to fund the pension schemes. ‘any material change to the corporate and capital structure of GKN would lead the trustees to reassess the strength of the covenant going forward and determine appropriate funding plans based on that covenant and its associated level of risk,’ the statement said.

‘The trustees expect full engagement with management and with any relevant third parties, at the appropriate time, to ensure satisfactory protection for any impacts arising from any change in the strategic direction or future ownership of the company.

‘In any discussions, the trustees’ focus would be to safeguard members’ interests.’ GKN dates back to the 18th century and makes parts for fighter jets, Black Hawk helicopters and audi and BMW cars.

The company, which employs 53,000 around the world, including 6,000 in the UK, is planning to split its aerospace arm from its cars division under new chief executive anne Stevens as it seeks to bolster its defences against Melrose and other suitors.

a Melrose spokesman said: ‘The numbers published today by the trustees are entirely in line with our own reading of the pension exposure at GKN. Melrose has an impeccable track record of safeguarding and improving pensioners’ rights in every acquisition we have made. We look forward to meeting the trustees as soon as is appropriate.’