Wednesday 20 June 2018

GKN pension trustees warn hostile suitor Melrose over mammoth funding gap

The trustees said they would need to be involved in any talks over the future of the group to protect pension funds of more than 32,000 members.

The trustees cautioned that any potential buyer should be aware of the mammoth deficit of GKN's pension schemes (David Davies/PA)
The trustees cautioned that any potential buyer should be aware of the mammoth deficit of GKN's pension schemes (David Davies/PA)

By Holly Williams, Press Association Deputy City Editor

Pension scheme trustees at hostile takeover target GKN have warned suitor Melrose over a deficit of up to £1.9 billion and called for “full engagement” with management and bidders.

The trustees said they would need to be involved in any talks over the future of the group to protect pension funds of more than 32,000 members.

They cautioned that any potential buyer should be aware of the mammoth deficit of GKN’s pension schemes and added they would need to reassess the strength of the company’s funding pledge and risks to the schemes in the event of any deal or break-up plan.

It comes after GKN vowed to separate its aerospace and automotive units and hired a new chief executive to defend itself against a £7 billion hostile takeover bid by turnaround specialist Melrose Industries.

The trustees said they are “concerned that any potential purchaser of GKN should be aware of the recent funding position of the schemes”, with a shortfall of £1.1 billion as of September 30, or as high as £1.9 billion depending on the basis of calculation.

They added: “The schemes are very substantial stakeholders in the business with a significant level of reliance on the strength of the GKN covenant.

“The trustees expect full engagement with management and with any relevant third parties, at the appropriate time, to ensure satisfactory protection and mitigation for any impacts arising from any change in the strategic direction or future ownership of the company.

“In any discussions, the trustees’ focus would be to safeguard members’ interests.”

The pension schemes have 32,337 members, including 5,105 active employees, 9,899 deferred members and 17,333 pensioners.

The warning comes as Melrose is this week ramping up efforts to win backing for its takeover approach by meeting shareholders in the engineering firm, which rebuffed its offer last Friday for undervaluing the firm.

The company, which specialises in buying up and rejuvenating manufacturers, is set to portray GKN as “an under-managed organisation without focus” and sub-par shareholder returns, but will add that it offers “huge scope for improvement”.

GKN’s new chief executive Anne Stevens as well as the firm’s finance director Jos Sclater are holding their own meetings with shareholders this week in order to discuss the company’s transformation plan, which is aimed at improving cash generation and profit margins.

The takeover tilt comes at a difficult time for GKN, which in November ditched its incoming boss less than two months before he was due to take the top job as it warned over another hit in its troubled US plant.

The firm instead appointed former non-executive director Ms Stevens as interim chief executive and on Friday confirmed her as the company’s permanent boss.

GKN, which makes wing tips for Airbus and parts for car giants including Mercedes and Jaguar Land Rover, revealed last year that a review of its US aerospace plants had uncovered additional write-offs of between £80 million and £130 million.

It had previously expected to write off £15 million on its Alabama facility, relating to “revised assumptions” on programme inventory and receivables balances, which sparked a wider review across the division.

Melrose has until February 9 to make a firm offer or drop its bid for GKN.

Press Association

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