Business Secretary calls for binding agreements from Melrose over GKN bid
Greg Clark stressed that a short-term approach would not be in the best interests of national security.
Business Secretary Greg Clark has demanded “extensive and clear” commitments from turnaround specialist Melrose over its £8.1 billion bid for UK engineering giant GKN, raising concerns over short-term interests.
In an exchange of letters with Melrose chief executive Simon Peckham, Mr Clark said GKN was a “valued employer” with Government sponsored contracts, and that the firm would have to agree to a list of “binding” agreements if its bid was successful.
Melrose said it was ready to make a five-year commitment to the business, having agreed with the Takeover Panel to maintain its UK listing and headquarters and ensure that a majority of its directors are resident in the UK.
It would also make sure that the Aerospace and Driveline divisions retain the rights to the GKN name and maintain GKN’s current level of research and development investments.
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 decision Business Secretary Greg Clark
Mr Peckham said Melrose was also prepared to guarantee to maintain ownership of its aerospace unit over that period.
“To demonstrate the strength of our commitment to ensure that its improvement and investment programme are 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 April 1 2023.”
He added that this approach was “in direct contrast to the fire-sale being undertaken by the current GKN board”.
Melrose’s letter responded to a number of Mr Clark’s concerns, with the Business Secretary asking for GKN to operate, be listed and headquartered in the UK.
He also asked for GKN to maintain its UK workforce, respect existing employment rights and working “closely” with their representatives.
Mr Clark said GKN would need to continue as a UK taxpayer, pay suppliers promptly, make arrangements for current and future pensioners, and investment in the training and development of the workforce.
He also stressed that a short-term approach would not be in the best interests of defence and national security, adding that he would like Melrose to rule out a short-term sale of the business barring Government consent.
The Business Secretary said there was a need for a long-term approach “mindful” of Melrose’s business model 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.
“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.”