GKN backs Airbus warning against Melrose takeover saying short-term business model is “inappropriate” for investors
GKN has responded to Airbus’ concern over an £8.1bn approach from Melrose, reiterating its “firmly held belief” that Melrose is not an appropriate owner for the firm.
Airbus, one of GKN’s most significant customers, had become the latest party to express concern over Melrose’s proposed £8.1bn hostile takeover of the engineering company, saying it would be “practically impossible” to award it new work if the bid went ahead.
Airbus chief operating officer Tom Williams was quoted in The Financial Times this morning saying a potential change in ownership at its supplier could threaten long-term investment because the turnaround specialist would be too focused on immediate concerns.
He told the FT: “The nature of our industry is one that requires a commitment to long-term investment and strategic vision. The industry does not lend itself to shorter-term financial investment which naturally reduces R&D budgets and limits vital innovation.”
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“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 added.
In response, 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.
Its management lacks the relevant experience and its short-term business model is inappropriate for GKN’s customers and investors.
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.
Melrose is to hold talks with Airbus in two weeks’ time to discuss any concerns the manufacturer might have regarding a takeover of GKN.
Melrose chairman Christopher Miller said: “We are certain that GKN’s new strategy of hasty short term business break up will not benefit the long term requirements of customers. In the aerospace segment we note that GKN has received approaches for that division, while at the same time contemplating a flawed sale of its Auto division to a US buyer.
“As a result, the aerospace unit will be disproportionately burdened with gross pension liabilities, restricting potential investment and innovation. Under Melrose, shareholders and customers will be able to enjoy a considered and longer term process of value creation, investment and business enhancement which is clearly not an option under continued GKN ownership.”
Airbus’ intervention will add to the already significant criticism that Melrose has faced in its attempted poaching of GKN. The chair of the Business, Energy and Industrial Strategy (BEIS) committee Rachel Reeves recently slammed Melrose for not providing enough information on the areas it intends to cover with legally binding post-offer undertakings (POUs).
“Melrose have given a sense of the likely direction of their post-offer undertakings, but there is a still a lack of detail in their commitments on investment and jobs and these currently fall short of being legally enforceable,” Reeves said.
GKN has consistently rejected Melrose’s offers of a takeover – even when the firm revised its offer from £7.4bn to £8.1bn, or 467p per share, saying Melrose continued to ‘fundamentally undervalue GKN”.
According to the FTSE 100 firm, the most recent, final bid does not reflect the value of GKN’s “world class aerospace business” or the benefits of combining GKN Driveline and Dana Incorporated. GKN last week agreed to merge its auto parts business with the US firm in a deal worth $6.1bn (£4.4bn).
GKN also said Melrose’s second hostile bid does reflects neither the return of up to £2.5bn in cash to GKN’s shareholders over the next three years, “a significant part of which is expected to come in the next 12 to 18 months”, nor an “illustrative trading sum-of-the-parts value of GKN as presented in GKN’s second response circular, which illustrates a value of over 500p per GKN share”.
Shareholders at Melrose, on the other hand, voted almost unanimously in favour of the initial £7.4bn hostile bid, while Aviva, a shareholder in both Melrose and GKN, said it was in favour of Melrose’s bid.
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