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Airbus warns over Melrose's £8bn GKN takeover Airbus warns over Melrose's £8bn GKN takeover
(about 4 hours later)
The bosses of GKN and its largest customer Airbus have cast further doubt on Melrose’s £8.1bn takeover bid for the engineering company. Engineering group GKN could face an exodus of customers if it is sold to turnaround specialist Melrose, an MP leading political opposition to the deal has warned, after the aviation firm Airbus said it would take its business elsewhere if a proposed £8.1bn deal went ahead.
Tom Williams, the Airbus chief operating officer, warned it could not give any new business to GKN if the deal with turnaround specialist Melrose went ahead. The Airbus intervention is a major blow for Melrose’s hopes, given the aircraft manufacturer’s position as GKN’s largest customer, accounting for about 7% of its sales.
He said: “The nature of our industry is one that requires a commitment to long-term investment and strategic vision.
GKN is a global engineering business based in Redditch, Worcestershire. It employs nearly 60,000 people across 30 countries. GKN is a global engineering business based in Redditch, Worcestershire. It employs nearly 60,000 people across 30 countries. 
Once known as Guest, Keen and Nettlefolds, the firm can trace its origins back to 1759 and the birth of the Industrial Revolution in Britain.Once known as Guest, Keen and Nettlefolds, the firm can trace its origins back to 1759 and the birth of the Industrial Revolution in Britain.
Split into three key divisions - GKN Aerospace, GKN Driveline and GKN Powder Metallurgy – the multinational designs,  manufactures and services systems and components for most of the world’s leading aircraft, vehicle and machinery makers. Split into three key divisions - GKN Aerospace, GKN Driveline and GKN Powder Metallurgy – the multinational designs,  manufactures and services systems and components for most of the world’s leading aircraft, vehicle and machinery makers. 
In 2017 it recorded pre-tax profits of £572m.In 2017 it recorded pre-tax profits of £572m.
“The industry does not lend itself to shorter-term financial investment which naturally reduces R&D budgets and limits vital innovation. It would be practically impossible for us to give any new work to GKN under such an ownership model when we don’t know who will be the long-term investor.” Tom Williams, the chief operating officer of the commercial aircraft division at Airbus, said the industry was not suited to “short-term financial investment”, a reference to Melrose’s business model of buying businesses it aims to improve and sell on.
The comments will be a blow to Melrose as Airbus is GKN’s largest customer, representing 20% of its aerospace sales last year. “It would be practically impossible for us to give any new work to GKN under such an ownership model when we don’t know who will be the long-term investor,” he said.
GKN also manufactures parts for Boeing 737 jets and Black Hawk helicopters. Jack Dromey, the Labour politician who leads a group of 16 MPs opposing the hostile takeover bid, said the concerns of Airbus “just go to show the danger a Melrose takeover would put GKN in”.
Earlier this week GKN rejected a final £8bn takeover offer from Melrose, saying it “continues to fundamentally undervalue” the engineering company. He said: “If GKN’s biggest customer believes that the takeover would lead to it sending work elsewhere due to the short-termist nature of Melrose’s business outlook, it is highly likely that other firms will follow.
The GKN chairman, Mike Turner, said: “The comments from Airbus that stress the need for long-term investment and strategic vision in our industry emphasise our firmly held belief that Melrose is not an appropriate owner of GKN. “Manufacturing relies on investment and research and development which can be planned decades in the future. This would not be the case if GKN was owned by a short-termist asset-stripper like Melrose. The takeover would be bad for business and bad for Britain, and must be stopped.”
“Its management lacks the relevant experience and its short-term business model is inappropriate for GKN’s customers and investors. A source close to the situation told the Guardian that Airbus had been irritated by difficulty it faced in securing a meeting with Melrose to learn more about the company’s plans for GKN.
“As we have previously stated, and as these comments from Airbus reinforce, winning new business in our markets would be more difficult if customers were uncertain as to the identity of their future long-term partners.” A meeting has now been arranged for the last week of March but the source said Airbus felt there had been a “lack of engagement” from Melrose with a customer that spent nearly £700m with GKN last year.
GKN is attempting to press ahead with a restructure in the face of Melrose’s overtures, which include merging its automotive business with US firm Dana in a $6.1bn (£4.4bn) deal. Senior figures at Airbus felt the company’s “concerns are being ignored”, the source added, pointing to the importance to its supply chain of GKN, which makes parts including wing components.
However, the Melrose chairman, Christopher Miller, hit back, insisting that the company “invests in its businesses for the long term”. The Melrose chairman, Christopher Miller, hit back at allegations of short-termism on Thursday, insisting the company “invests in its businesses for the long term”.
He added: “We will be delighted to explain to all customers and stakeholders why Melrose’s ‘invest as if we were to own the business forever’ approach is the right way forward for GKN. He added: “We will be delighted to explain to all customers and stakeholders why Melrose’s ‘invest as if we were to own the business for ever’ approach is the right way forward for GKN.”
“We are certain that GKN’s new strategy of hasty short-term business break-up will not benefit the long- term requirements of customers.” He criticised GKN’s proposal of alternative deals as part of its bid defence, including a merger of its automotive business with US firm Dana. “We are certain that GKN’s new strategy of hasty short-term business break-up will not benefit the long- term requirements of customers,” said Miller.
Shares in GKN were trading over 2% down at 427.9p in midday trading.
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