Melrose fails the R&D test

No one delivered a knockout punch at the Business Select Committee hearings on the £7.4bn takeover bid by sharp-shooters Melrose Industries for GKn.

But MPs heard two different visions about Britain as a manufacturing champion. GKn’s determined finance director Jos Sclater summed it up succinctly saying the battle is about ‘short-term capitalism versus long-term capitalism’.

Melrose’s claim is that GKn is a great British business that lost its way due to ‘bad management’. There have been mistakes, notably on an aerospace contract in the US. But Melrose is not faultless having made losses in each of the last two years and a hash of running the energy outfit Brush, where the losses keep on piling up.

Melrose boss Simon Peckham argues that GKn is wrong in seeking to run everything from the centre. The reality is that its Redditch headquarters staff is remarkably thin and bolstered by the fact that its Midland operations are run from there.

Amid the Melrose verbiage and promises to keep on investing in research and development, there was a telling moment. Asked to commit in writing to a percentage of sales to be spent on R&D each year, Peckham floundered saying it was something ‘I am not allowed to’. That is because any such pledge made during the course of a bid can effectively become legally binding.

This will be monitored by the City referee, the Takeover Panel, on a regular basis. Pharmaceutical group Astrazeneca is still reporting to the panel on revenue projections and research undertakings made in its defiance of Pfizer in 2014.

GKn has confused the political classes with its secretive white-knight talks with US car-making ally Dana, and announced its intention to split itself into GKn automotive and GKn aerospace by 2019.

But in the absence of intervention by a do-nothing Government, it is get-rich-quick shareholders who will decide the engineer’s fate. GKn had to demonstrate it can create value. Disturbingly several long-term investment funds who should know better have already raised the white flag.

FCA bungling

AnDRew Bailey was handed a poison chalice when he took on the role of chief executive of the Financial Conduct Authority in 2016. There cannot be a more inept and dilatory financial regulator anywhere.

It has taken five long years to discover that the disgraced former chairman of the Co-op Bank, Paul Flowers, lacked the ‘fitness and propriety’ to work in financial services. After being filmed and found guilty of buying illegal drugs, this was a finding which could have been made in months.

The Government is no better. In 2014 the Treasury Select Committee called for an independent inquiry into the role of regulators in policing the effort of the Co-op to buy 632 Lloyds branches, which were eventually floated off as TSB.

only now that the trail has gone cold has a senior Bank of Canada official been tasked with the probe. The horse bolted long ago.

Secret sellers

eveRy quarter the City crawls over Kantar grocery sales data and marks the shares of the quoted supermarkets up or down. what would be worthwhile over the longer haul would be to closely monitor the still growing market share of German interlopers Aldi and Lidl.

when the German ‘private’ companies began a breakneck expansion at the start of the Great Recession, they were seen by competitors as austerity-era grocers who would lose out when growth returned.

Instead, Aldi and Lidl aimed marketing at the Chelsea tractor crowd and gathered momentum.

In the last year their share of the market has climbed from 11pc to 12.1pc.

That is not just a threat to Sainsbury’s, Asda and the rest, but to the food manufacturers too.

Firms such as Associated British Foods have spent decades building brands including upmarket tea Twinings, with distinctive gold and black packaging, only to find looka-likes on the shelves of Lidl and Aldi.

Both the no-frills grocers are only too willing to share upbeat developments such as the opening of stores, extra staff and the arrival of chateau bottled Bordeaux.

But there is precious little broader stakeholder information, including ownership, governance, tax status and the supply chain.

As enticing as low prices may be to consumers, the playing field has been tilted in favour of parvenus.