Melrose trio who sought biggest deal yet with GKN – and biggest challenge

https://www.theguardian.com/business/2018/mar/29/melrose-trio-gkn-christopher-miller-david-roper-simon-peckham

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The three men who built Melrose into a £4.3bn business have a long track record of buying struggling industrial companies, turning them round and selling them on at a profit.

Christopher “Jock” Miller, Melrose’s executive chairman, was a protege of Lord Hanson, the 1980s wheeler dealer who built a corporate empire with a number of aggressive takeovers.

Miller and David Roper met while working as chartered accountants in Switzerland in the 1970s. Miller then joined Hanson, while Roper went to work in the corporate finance divisions of banks SG Warburg, BZW and Dillon Read.

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.

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.

Roper was nicknamed “the Grinder”, supposedly for his detailed financial analysis of companies targeted for takeover.

Together they bought into small Leicestershire shoe retailer Wassall in 1988. Using Wassall as an acquisition vehicle, the duo turned it from a company worth just £1.9m into a wide-ranging engineering business, from glue to bottle tops. The shoe shops were sold and a series of ever larger takeovers followed.

Eventually Wassall was itself sold to the US buyout specialist Kohlberg Kravis Roberts for £672m in 2000.

Simon Peckham, a solicitor, joined Wassall in 1990 and later became its corporate development director. He started his career as a solicitor at Clifford Chance and later worked for the equity finance division of Royal Bank of Scotland between 2000 and 2003.

After spending a couple of years doing little but improving their golf handicaps, according to Roper, he and Miller teamed up with Peckham again to set up Melrose. They put in £3m of their own money and floated the company on London’s junior Aim market in 2003 with a market capitalisation of £10m. Melrose gained backing from a number of top City institutions including Schroders and Fidelity.

Once again they used the company to mount a series of acquisitions – the die-cast specialist Dynacast, the engineering group McKechnie and the metering business Elster among them – before disposing of them and returning the proceeds to shareholders.

GKN began as the Dowlais Ironworks Co in south Wales in 1759. By the mid-19th century it had become the largest ironworks in the world, producing almost 90,000 tonnes of iron a year.

A reverse takeover pushed through by entrepreneur Arthur Keen created Guest, Keen & Co. Two years later, Keen drove through the takeover of a reluctant Nettlefolds Ltd and the enlarged company became Guest, Keen & Nettlefolds. It was the largest iron, steel and coal group in the country.

During the first half of the 20th century GKN became heavily involved in wartime production, while also making its first move into the emerging motor industry. It produced Spitfires, a specialised tank for the D-day landings and millions of steel helmets.

GKN emerged from the second world war as Britain’s biggest steel producer but was virtually bankrupt.

Faced with the Labour government’s drive to nationalise the steel industry, GKN gradually withdrew from steel over the next 20 years. It pushed into the automotive industry.

The group made the first loss in its history; it soon expanded globally. In 1988 it acquired a stake in Westland, the British helicopter and aerospace manufacturer, and moved into aerospace technology.

GKN focused on four businesses: aerospace, Driveline, powder metallurgy and land systems. It was relegated from the FTSE 100 index.

GKN issued a series of profit warnings after writedowns at its North American aerospace division and its chief executive designate Kevin Cummings was ousted.

Melrose made a hostile £7bn cash-and-shares takeover bid, upped to £8bn in March. Non-executive director Anne Stevens, a former Ford executive, became GKN’s new CEO.

GKN struck a $6.1bn (£4.4bn) deal on 9 March to merge its automotive business with the US firm Dana in an attempt to fend off the Melrose bid.

Shareholders have to decide whether to accept or reject the bid by 1pm on 29 March. Melrose needs 50% plus one share support.

Melrose’s current businesses are Nortek, a US company that makes kitchen stove hoods and extractor fans, and Brush, which produces electricity generating equipment. Melrose has an annual turnover of just over £1bn and employs more than 12,000 people worldwide. It has a market value of £4.3bn.

Miller, Roper and Peckham, along with Melrose finance director Geoff Martin, hit the headlines last year when it emerged that they would share a bonus pot of £160m, one of the biggest corporate paydays in the City.

Peckham has been chief executive of Melrose since 2012, taking over from Roper who was appointed executive vice-chairman at that time.

Setting out their philosophy, Roper once said: “We find fundamentally good businesses which are badly managed but need a change of culture.”

A takeover of GKN would be their biggest deal yet, and their biggest challenge.

Miller has always been philosophical about failures along the way. He told the Daily Telegraph in 2004 after losing the battle for mini-conglomerate Novar: “If you fail in a public company bid, everyone knows and of course it is disappointing. My children said: ‘Oh Daddy, can’t you just pay them more?’ This is about getting an asset at the right price. If you can’t get the right price, you just go home.”