Crackdown on city profiteers after hijacking of GKN deal
SPECULATORS who jump in late and hijack major deals for a quick profit – as in the takeover of engineering giant GKN – face a Government crackdown.
Business Secretary Greg Clark is preparing to overhaul the rules amid fury over the sale of the British firm last month, sources claim.
He is expected to review whether shareholders that have only just bought into a company should be allowed to vote on vital takeover deals. It comes after the GKN deal was hijacked by hedge funds and other short-term investors that built up investments over the past few months and ended up controlling a quarter of the shares, allowing them to force through the controversial £8billion deal.
City asset-stripper Melrose won the backing of 52 per cent of GKN shareholders – just above the majority required.
Hedge funds are estimated to have made a profit of around £172million when GKN’s share price soared on the day the takeover went through. Ruthless New York hedge fund Elliott, which built up its GKN stake to nearly 4 per cent in the weeks before the takeover, could have made about £26million.
Many critics, backed by a Daily Mail campaign, were concerned about GKN’s longterm future under Melrose’s ownership because of its strategy of selling firms on at a profit, often within three to five years. The 259-year-old engineering firm, which made Spitfires in the Second World War, now makes parts for cars, planes and fighter jets around the world.
Tory MP Lucy Allan last night called for a review of takeover rules. She said: ‘It is right that shareholders decide the future management of a company in which they are invested.
‘But as the GKN takeover illustrated too well, it was not shareholders as we know them who decided the future of this company. We saw speculators come on to the share register in the final weeks of the bid process with one simple objective: to make a quick profit. ‘These “investors” cared nothing for the future of the company, had no interest in which management team should take GKN forward and did not give employees, pensioners, customers and suppliers a second thought.’
Currently, British rules let all investors vote on a takeover bid, which allows speculators to buy shares after a potential deal is announced and then use their influence to push it in the direction that makes them the most profit.
The idea of restricting shareholder votes was looked at by former business secretary Vince Cable following Kraft’s hostile takeover of Cadbury in 2010, which Cadbury chairman Roger Carr blamed on hedge funds piling in at the last minute. It led to hundreds of job losses the following year when the American firm closed Cadbury’s factory in Keynsham, near Bristol, and moved production to Poland. However, no change was made amid fierce lobbying that it could discourage future investment in Britain.
Mr Clark is now understood to be willing to look at the issue again as he comes under pressure to block Melrose’s takeover of GKN on national security grounds due to its military supply contracts.
Labour MP Jack Dromey, who campaigned against the Kraft takeover of Cadbury, said a review was urgently needed. He added: ‘If we are serious about Britain retaining a serious industrial base, the time has come for a fundamental rethink in our ground rules on takeovers.’
Steve Turner, the Unite union’s assistant general secretary for aerospace, said: ‘This takeover has put into the spotlight the inadequacy of the UK’s takeover rules, which put the interests of short-term speculators over those of the workforce and long-term investors. It is a takeover that works directly against the national interest and national security interests.’
The Department for Business, Energy and Industrial Strategy declined to comment last night.
of the GKN takeover is that it was forced through by unscrupulous speculators who bought up 25 per cent of the stock in order to fix the vote and make a quick profit.
So the Mail welcomes the news that Business Secretary Greg Clark is ready to change the rules around takeovers to stop it happening again. Will he now go further – and use his power to veto the GKN deal on national security grounds?