Alex Brummer: City vultures want to tear GKN


We are facing a seismic moment that could determine the future of Britain as an industrial power. 

Because, amid the furore over the collapse of outsourcing firm Carillion, another potential tragedy is unfolding virtually unnoticed.

The episode has echoes of the asset-stripping excesses of the Eighties movie Wall Street — and involves a group of ruthless Mayfair-based entrepreneurs who are plotting the takeover and dismemberment of the nation’s oldest engineering firm.

GKN — or Guest, Keen & Nettlefolds, as it was once known — is a vast company with a history reaching back 259 years. Its products have played a huge part in the long story of this nation.

Today, the firm, chaired by veteran industrialist Mike Turner, is exactly the kind of manufacturing champion and global exporter that is going to be vital to the UK’s prosperity as the nation embarks on a future post-Brexit, trading freely with the rest of the world.

Far from wallowing in its past, the company under the leadership of silver-haired chief executive Anne Stevens is now a high-tech engineer that maintains a laser-like focus on the future.

GKN makes components for the world’s biggest aerospace firms, as well as the ‘drivelines’ (what we used to call drive shafts) for many of the world’s leading motor manufacturers. 

The FTSE 100 giant is a supplier to firms such as Airbus, Boeing and BMW.

The company is also vital to the defence industry. Among other things, it produces key components for America’s famed Black Hawk helicopter and the F18 Hornet fighter, and is working with the Pentagon on the next-generation stealth bomber programme. 

Last year alone, it sold £3.3 billion of aerospace components and other equipment to the U.S.

Spanning the manufacturing sector with separate automotive, aerospace and paint divisions, it boasts 58,000 staff around the world. 

But it is not just its size — given its formidable defence interests, it is of huge strategic importance to this country. Yet now it is the subject of a dramatic hostile takeover bid that has transfixed the City.

The bid will serve as a litmus test for whether Britain’s great engineering and defence firms can remain independent in the modern age.

Perceived by its predators to be a sleeping giant that can be made leaner and more profitable, Redditch-based GKN is in the sights of a firm called Melrose, which is making an audacious £7.4 billion hostile bid.

Melrose is run by Chris Miller — a former acolyte of the legendary City asset-stripper Lord Hanson — who works alongside a group of slick financial whizzes with a penchant for Hermes ties, pin-striped suits, long lunches and the ski slopes.

Miller and his close associates, David Roper and Simon Peckham, have become fabulously rich using rapacious tactics. 

Last year, they were each handed around £40 million in shares. Previous years saw payouts to the trio in excess of £100 million, making them among the wealthiest plutocrats running FTSE100 firms.

Melrose has become something of a City favourite with a reputation for seeking out dull, underperforming industrial groups, then ruthlessly stripping out ‘costly’ assets and selling them on for a big profit within five years.

But investment for aerospace engines is a long-term process and it can sometimes be 40 years, with 15 years or more of research, before any return starts to flow.

Respected aerospace analyst Howard Wheeldon is unsparing in his criticism of Melrose.

Under the mantra of improving the business, he says, it ‘strips the assets, loads the company up with debt and is nothing more than a vulture’.

Vultures, he adds, are more often than not ‘the death knell of fine companies’. For not all that Miller and his team tackle turns into investor gold.

Earlier this month, Melrose revealed it was to cut 270 jobs at the Brush turbo-generator enterprise at Loughborough, which it bought a decade ago.

Analysis of Melrose’s previous transactions shows that almost every company brought under its umbrella has been sold off to foreign or private equity buyers.

Its declared goal with this takeover bid is to ‘simplify and de-clutter’ GKN, as if re-energising the vast and complex engineering concern — which has extensive research and development facilities — can be compared simply to cleaning out the attic before moving house.

If Melrose is successful in persuading GKN investors to sell the company, Miller, Roper and Peckham could personally reap a bonus of up to £285 million between them — riches beyond the dreams of avarice.

When I met its senior executives at their swanky West End of London offices, they gleefully boasted how they would close down GKN’s head offices in the heart of the Midlands, sack all the staff and empower the divisions and factories around the world by letting the local managers loose and giving them autonomy.

Employing cost-cutting measures and smart accounting, they say they would improve the profit margins and sell off parts of the business to the highest bidder — who would almost certainly be foreign — irrespective of whether that would damage Britain.

The result could be that vital technology for, say, electric cars — designed and developed in GKN’s own labs — falls into the hands of owners in China where GKN has factories, wasting a decade’s worth of investment and research.

The company already has £2 billion of orders for its new electric ‘driveline’, with Volvo among the first big motor manufacturers to sign up.

Some observers might argue that this kind of free-market capitalism purges inefficiency and complacency, leading to more successful firms. Indeed, at least one major shareholder in GKN has quietly backed the takeover bid. 

Yet there is far more to it than that: not least the matter of Britain’s standing proud as a global trading nation with blue riband firms that are respected around the world.

We know from recent experience how destructive unwanted hostile takeovers of British firms can be, and how assurances given by predatory companies cannot be trusted. 

The last bitterly fought battle was the £12 billion takeover of Cadbury by U.S. firm Kraft in 2010. Kraft promptly broke its pre-takeover promise to keep open a factory near Bristol where the Wispa bar was made, and moved production to Poland.

It closed Cadbury’s Slough headquarters, shifted the company’s tax domicile from Britain to low-tax Switzerland, and meddled with the size, ingredients and taste of emblematic brands, including the Creme Egg.

Indeed, I would argue that in recent decades untrammelled takeovers by asset strippers and foreign intruders looking for short-term gains have undermined Britain’s manufacturing capacity, inventiveness and economy.

Among their victims have been the nation’s flagship chemical and life sciences group Imperial Chemical Industries, which was splintered into several parts and largely sold overseas after a failed hostile bid by the late Lord Hanson in the early Nineties.

Britain’s biggest defence and power manufacturer General Electric Company (GEC) was also sold off bit by bit by a new management.

And the last of Britain’s large-scale brewers, Scottish & Newcastle, was swallowed — and all but destroyed — by mass market European lager producers Carlsberg and Heineken.

These raids on great, iconic British companies mean there are now huge industries where Britain has lost its competitive edge to Germany, the U.S. and Japan in global markets.

Not surprisingly, Business Secretary Greg Clark has come under pressure from GKN chairman Mike Turner, who argues that his company is precisely the

kind of specialist engineering giant that ought to be at the forefront of our new industrial strategy after leaving the EU.

Turner will be encouraged by recent words from PM Theresa May in the Commons, where she pledged scrutiny of the hostile bid and that she would act in the ‘national interest’.

But all that has been heard from Clark’s department so far is that it is monitoring the situation. 

The phrase fills me with dread, since the Department of Business was also supposed to be keeping an eye on Carillion, which it allowed to fall into insolvency, putting 30,000 sub- contractors at risk.

A bid by one British firm from another may not seem like a matter for government. But at the least GKN’s role as an aerospace contractor, supplying the defence sector and Rolls-Royce among others, means the Government should order an inquiry on national security grounds.

What now has to happen is for the Government to declare the Melrose takeover bid a threat to Britain’s industrial base and strategic defence interests. 

There would be few City executives with enough brass neck to pursue a deal viewed in Whitehall following such a declaration.

The problem with trying to stop hostile takeovers is that they’re often driven by short-term investors such as hedge funds. 

They buy large chunks of shares in the target company as bid rumours emerge, in the hope of making a killing for their investors.

These get-rich-quick merchants have little interest in the long-term health of a firm like GKN. It’s all about making a buck.

Make no mistake, it would be a gross dereliction of duty if the Conservatives — who pledged to support Britain’s high-tech economy — allowed GKN to be torn into dozens of pieces and sold off like a smashed-up car.

At the very moment when British manufacturing is seeking to stretch beyond Europe to the rest of the world, GKN is just the kind of business that should be getting all-out support from the Government.

‘What the money news means for you’



Leave A Reply