Melrose And GKN's War Of Words Spills Over To Parliamentary Committee

14th Mar 2018 14:21

LONDON (Alliance News) - Melrose Industries PLC published Wednesday its response to UK legislators regarding its hostile GBP8.4 billion takeover bid for GKN PLC, defending its intentions for both the business and its pensioners as it seeks to squeeze out a rival GKN deal with Dana Inc.

Writing to the UK parliamentary Business, Energy & Industrial Strategy Select Committee Chair Rachel Reeves on Tuesday, Melrose Chief Executive Officer Simon Peckham reiterated his belief the FTSE 250-listed industrial turnaround specialist was the "right steward" for this "important British business".

In particular, Melrose provided more detail on its plans for GKN's pension schemes. This follows a heightened war of words on Tuesday between GKN and Melrose regarding their respective pension provision intentions.

Melrose argued GKN's proposed Dana automotive unit merger deal - in addition to the potential sale of GKN's powder metallurgy business - would see pension liabilities for GKN's remaining aerospace business stand at 10 times profit. This is more than three times the FTSE 100 average, Melrose noted.

In response, GKN described Melrose' pension comments as "misleading". GKN argued it would make "very substantial cash contributions" to its pension schemes after the Dana deal. These contributions, the pension trustees said, would be "sufficient to make the schemes fully funded".

GKN also questioned Melrose's assertions it was having "constructive talks" with the pension trustees. GKN cited the trustees themselves who emphasised that "key concerns" have still not been addressed by Melrose.

Last Friday, GKN announced it had reached an agreement to combine its automotive Driveline business with New York-listed engineering firm Dana in a USD6.1 billion cash-and-shares deal.

Under the deal, GKN would transfer USD1.0 billion of a pension scheme deficit to the new, enlarged Dana. Earlier on Wednesday the Financial Times reported that Dana executives were seeking to woo GKN's investors by potentially offering a secondary London listing after the merger.

GKN's pension deficit stood at GBP1.50 billion at the end of 2017.

Writing to the select committee Tuesday, Melrose said it will pay an initial voluntary GBP150 million contribution within 12 months of completion of the deal. This, the company explained, did not require any action or agreement from the pension trustees.

Melrose also added GKN had "substantially reduced" its annual contributions to the scheme, despite it still not being fully funded.

"We intend to reverse this decision by increasing annual contributions to the schemes from existing levels until fully funded", Melrose's Peckham explained.

Melrose also intends to "fully adopt and protect" GKN's pension within the enlarged Melrose business.

"We intend to have the strength of the enlarged Melrose group stand behind the GKN Pension schemes, Peckham added. "On current market values this equates to a GBP10 billion market capital company supporting the schemes, as compared to the GBP5.6 billion market capitalisation of GKN prior to our approach."

In light of its US rivals bid which would see ownership and management shift overseas, Melrose was at pains to highlight that it was a British business itself.

"We are a British listed company," Peckham explained. "We buy good but underperforming manufacturing and engineering businesses and use our expertise to improve them to the benefit of all stakeholders: employees, customers, suppliers, pensioners and shareholders."

"We invest in R&D", Peckham continued. "We invest in our people, in skills and training. We boost productivity. We have always improved the strength of our pension funds. We are British and work in the national interest."

Under its current management, Melrose argued, GKN had "lost its way". Melrose said it plans to return GKN into a "British manufacturing powerhouse - competitive on the global stage".

It will retain GKN's "world famous" brand name as well as retain a UK board and UK headquarters.

Melrose also committed to "at least" maintain research and development investment at similar levels to GKN's 2.2% of sales level seen between 2014 and 2016.

Melrose's Peckham also stressed its deal was "not just about GKN but its supply chain too."

"We intend to work with the many UK companies large and small in GKN's supply chain to drive productivity and deepen relationships," Peckham explained.

Shares in Melrose were 2.2% higher at 220.40 pence on Wednesday, GKN were 1.8% higher at 437.70p.

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