Reject the bid plea

As GKN investors face a vote on Thursday (March 29) on whether to accept a predatory takeover bid from ‘turnaround specialist’ Melrose, Unite has again urged shareholders to reject the bid and instead vote for the company’s long-term future.

Late on Friday afternoon (March 23), Melrose’s short-term intentions were further revealed when it came to light that the firm had lifted a self-imposed deadline for approval of its debt-fuelled takeover by US authorities – in effect asking shareholders to take a ‘leap in the dark’, Unite has said.

Initially, Melrose had said its takeover bid would be dependent on approval from the Committee on Foreign Investment in the United States (CFIUS), which has the power to block takeovers if they threaten national security. Although GKN is not a US firm, it is involved in the manufacture of US defence equipment and aircraft, including the B-21 bomber aircraft.

Now that Melrose has waived the requirement that CFIUS approve the takeover before shareholders vote on the deal, investors will take a risk not knowing whether the takeover will be held up by US authorities later when the Committee makes its decision.

“Melrose is effectively asking shareholders to take a leap in the dark and back its debt-fuelled bid, not knowing if it will be held up by the US authorities on national defence grounds or whether it will retain customers,” said Unite assistant general secretary Steve Turner.

“There is every possibility that the US authorities will intervene in Melrose’s bid on national security grounds,” he explained. “GKN is a major supplier to the US military and a key partner on defence programmes such as the F-35 joint strike aircraft in which the UK government has a stake.”

Turner also highlighted warnings from major GKN customers such as Airbus, whose chief operating officer Tom Williams said earlier this month that “it would be practically impossible” for Airbus to give GKN any new work if the Melrose takeover goes through because Melrose’s business model is based on short-termism.

Turner said the Airbus warnings, added to the uncertainty over the pending CFIUS decision, leaves shareholders in a “sea of uncertainty and instability.”

“We urge shareholders to back stable long-term relationships and investment in world class design, engineering and manufacturing that only GKN can provide, over the uncertainty of Melrose,” he noted.

Push for stronger takeover laws

The call to shareholders comes as Unite has pushed for stronger takeover laws in the UK. Less than two weeks ago, consumer goods giant Unilever announced it would be moving its headquarters to Rotterdam – choosing the Dutch city over London – specifically because the UK’s weak laws left companies exposed to predatory takeovers like Melrose’s.

Unite general secretary Len McCluskey explained in a LabourList comment piece today (March 26) that because shareholders’ interests reign supreme in UK takeovers, the national interest or long-term interests of companies, their workers, customers and suppliers always takes a back seat.

“This allows the forces of short-termism, and the interests of speculators looking to turn a quick buck, to destroy jobs and run riot with our great British household name companies,” he said.

“But it doesn’t have to be this way,” McCluskey added. “UK firms are as able to use protection mechanisms to preserve control as any others. Companies in Holland, France and across Europe make frequent use of so-called control enhancing mechanisms (CEMs) to lock-in long-term shareholder investment and reduce the risk of unfriendly approaches, and the evidence they work is fewer hostile takeovers and firms controlled by foreign investors.”

But, the Unite general secretary said, UK companies often don’t use CEMs – which can allow long-term investors to have a greater say in takeover votes – because “more often than not, board members want to cash in when the opportunity arises, while vested interests driven by short-term profit put the preservation of jobs and the retention of key British businesses at risk.”

Unite last week commissioned a report by Acuity Analysis which lays out a blue print for strengthening the UK’s takeover laws.

Power to intervene

Despite the UK’s weak laws, action can be taken now by the government in the Melrose bid – it has the power to intervene on national security grounds. But Unite fears the government will refuse to do so despite calls from MPs from across the political spectrum to block the bid.

McCluskey highlighted “Theresa May’s continued inaction,” warning of the “very real danger that more companies like Unilever will flee overseas, while more UK employers fall prey to hostile bids, leaving the workforce, national and social interests to be sacrificed on the altar of short-term asset-strippers.”

Shareholders have until noon on Thursday (March 29) to decide whether to accept Melrose’s bid or the GKN management plan, which would see the firm’s Driveline business merged with Dana, a US-based vehicle component manufacturer.

About 10 per cent of shareholders have already committed to the Melrose plan, while about 9 per cent have pledged to back GKN management. For the takeover to be go through, just over 50 per cent of shareholders must vote in favour of Melrose.

Stay tuned on UNITElive on Thursday (March 29) for more after the shareholder vote