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Government wades in to GKN takeover battle Government wades into GKN takeover battle
(35 minutes later)
Business Secretary Greg Clark has written to Melrose seeking assurances from the turnaround specialist over its hostile £8.1bn bid for GKN. Business Secretary Greg Clark has written to Melrose demanding "binding" commitments from the turnaround specialist over its £8.1bn bid for GKN.
Mr Clark sought "binding" commitments over GKN's workforce, research and development, and pension schemes. Mr Clark sought "extensive and clear" measures over GKN's workforce, research and development, and pension schemes.
He also raised concerns over national security given GKN's role in supplying the UK armed forces.He also raised concerns over national security given GKN's role in supplying the UK armed forces.
In response, Melrose set out a number of pledges, including not selling GKN's Aerospace Division for five years.In response, Melrose set out a number of pledges, including not selling GKN's Aerospace Division for five years.
It also said that for five years it would maintain GKN's UK listing, maintain its UK headquarters, and ensure research and development (R&D) spending remained at least 2.2% of sales.It also said that for five years it would maintain GKN's UK listing, maintain its UK headquarters, and ensure research and development (R&D) spending remained at least 2.2% of sales.
Deadline approaching
GKN makes parts for planemakers Airbus and Boeing, as well as parts for Volkswagen and Ford cars.GKN makes parts for planemakers Airbus and Boeing, as well as parts for Volkswagen and Ford cars.
It is one of the UK's largest industrial firms, employing more than 59,000 people globally - 6,000 of them in the UK.It is one of the UK's largest industrial firms, employing more than 59,000 people globally - 6,000 of them in the UK.
Melrose specialises in buying up industrial companies it believes are undervalued and restructuring them before selling them on.Melrose specialises in buying up industrial companies it believes are undervalued and restructuring them before selling them on.
GKN shareholders have until midday on Thursday to accept the bid from Melrose, or back GKN's own business plan.GKN shareholders have until midday on Thursday to accept the bid from Melrose, or back GKN's own business plan.
The plan includes combining GKN's auto unit with US group Dana, leaving GKN to concentrate on its aerospace business.The plan includes combining GKN's auto unit with US group Dana, leaving GKN to concentrate on its aerospace business.
In his letter to Melrose chief executive Simon Peckham, Mr Clark set out a series of commitments "which would need to be binding" if the company's bid for GKN was successful.In his letter to Melrose chief executive Simon Peckham, Mr Clark set out a series of commitments "which would need to be binding" if the company's bid for GKN was successful.
He said GKN should remain operating as a UK business, with its share listing and headquarters staying in the UK.He said GKN should remain operating as a UK business, with its share listing and headquarters staying in the UK.
He also said GKN should maintain its UK workforce and respect existing employment rights. GKN should also maintain its UK workforce and respect existing employment rights.
In addition, Mr Clark sought commitments over investment in R&D, investment in workforce training, and arrangements for current and future pensioners.In addition, Mr Clark sought commitments over investment in R&D, investment in workforce training, and arrangements for current and future pensioners.
In the area of defence, the business secretary said he would expect "to see a commitment to continuity of ownership and strategic investment specific to the defence related business of GKN and to exclude the option of a short-term sale of this business without the consent of the government". In the area of defence, the business secretary said he would expect "to see a commitment to continuity of ownership and strategic investment".
Also, Melrose should not quickly sell-on the business without the government's consent.
Tensions
Mr Clark said he was "mindful the business model which Melrose operates and its history of acquiring, improving and selling businesses".Mr Clark said he was "mindful the business model which Melrose operates and its history of acquiring, improving and selling businesses".
"Whilst this approach can have an important and beneficial role to play, tensions could arise between this approach and the need for long-term investment and stability."Whilst this approach can have an important and beneficial role to play, tensions could arise between this approach and the need for long-term investment and stability.
"The public should reasonably expect that companies that benefit directly or indirectly from long-term public sector contracts or indirectly from government-supported long-term research and development should be willing and able to adopt appropriate time horizons on investment decisions." He said the public "reasonably" expects that companies which receive public money through contracts or R&D, should take a long-term view.
In response, Mr Peckham said Melrose's proposal was preferable to the "fire-sale being undertaken by the current GKN board".In response, Mr Peckham said Melrose's proposal was preferable to the "fire-sale being undertaken by the current GKN board".
He said Melrose had agreed a number of legally enforceable undertakings with the Takeover Panel to address the government's concerns - including maintaining GKN's UK base and its spending on R&D.He said Melrose had agreed a number of legally enforceable undertakings with the Takeover Panel to address the government's concerns - including maintaining GKN's UK base and its spending on R&D.
In addition, he said: "To demonstrate the strength of our commitment and ensure that its improvement and investment programme is not unduly interrupted, we are willing to make a legally binding commitment to you.. that, subject to below, Melrose will not sell the Aerospace Division before 1 April 2023."In addition, he said: "To demonstrate the strength of our commitment and ensure that its improvement and investment programme is not unduly interrupted, we are willing to make a legally binding commitment to you.. that, subject to below, Melrose will not sell the Aerospace Division before 1 April 2023."
Mr Peckham added that this would not prohibit it from floating the Aerospace Division on the UK stock market.Mr Peckham added that this would not prohibit it from floating the Aerospace Division on the UK stock market.
He also said that if it was approached by a "suitable strategic purchaser" before 1 April 2023, it would seek government approval for the deal. He also said that if it was approached by a "suitable strategic purchaser" before 1 April 2023, Melrose would seek government approval for the deal.