In advance of Thursday's debate in Westminster Hall on the
proposed takeover of GKN by Melrose, the sponsor of the
debate, ,
Labour MP for West Bromwich West, has written the following
article.
GKN is a historic British Company with an international footprint
worth over £6.5bn in total. In 2015, it employed over 6,000
people in the UK, had 14 sites with sales of over £16bn and
contributed £1.36bn to the economy.
It legitimately is described as the world’s first tier supplier
particularly in the automotive and aerospace industries.
GSK holds the position at least in part for its research,
advanced technology and trusted business relationships with
multi-national companies worldwide.
It is a company of enormous strategic importance to the British
economy.
Whatever its future, it is difficult to see what Melrose can
offer. As a hedge fund operator, it claims to specialise in
buying, investing and then selling off companies. Not only is GKN
over six times as large as any other company it has taken over to
date, but its basic business strategy is not compatible with the
long-term investment, research and technology development that
GKN specialises in.
It is difficult to see what advantage the takeover can bring to
anyone other than Melrose and, debatably, GKN shareholders. GKN
have countered with strong proposals designed to convince their
shareholders to reject the bid.
However, the debate about shareholder value cannot be the only
consideration of this Government. The proposed takeover
highlights flaws in our governance of takeover bids that were
previously exposed during the Kraft/Cadbury takeover and
subsequently the Pfizer attempt to take over AstraZeneca.
Takeover battles historically benefit city lawyers, bankers,
accountants and other advisers (estimated to be £400m in the
Kraft/Cadbury case.) And sometimes, in the short-term
shareholders.
There is little evidence of long-term benefits to the companies
involved but plenty of evidence to demonstrate the cost to
society and the economy of the redundancies that almost
inevitably ensue.
If the Government really wants to rebalance the economy, and
inject long-term thinking into manufacturing investment, then a
stronger Takeover Code is necessary.
The 2002 Enterprise Act allows the Secretary of State to
intervene in mergers where they give rise to certain specified
public interest concerns, specifically, issues of national
security, media quality, plurality and standards and financial
stability. In these cases, the Secretary of State may assess a
merger purely on the grounds that it runs counter to the public
interest.
I believe that these conditions should be extended. But even as
they stand, in the case of GKN and Melrose, the takeover could
potentially violate the first test on national security.
GKN has extensive military aerospace involvement, including in
the Lockheed Martin - F-35 Lightning II (JSF), F-22 Raptor,
Boeing – F-15 Eagle, F/A-18 Hornet, AV-8B Harrier II, Eurofighter
– Typhoon, Panavia – Tornado, Saab – JAS-39 Gripen F35 and RM12
engines, and of course the new B21.
The US Government is highly likely to review any takeover via its
Committee on Foreign Investment in the US. The UK has a clear
interest and should do the same. The public interest test applies
under the national security element of Section 58 of the 2002
Enterprise Act and the UK government has the power to consider
whether the takeover is in the public interest.
On Friday 2 August 2016, the Prime Minister launched her Cabinet
Committee focusing on delivering one of her government’s top
three priorities – an economy that works for everyone, with a
strong industrial strategy at its heart. The case of the GKN
takeover provides with a chance to prove the
strength of her commitment to her self-defined mission to make a
Britain a country that works for all.
Other MPs who have confirmed attendance at Thursday's debate (and
are likely to speak) are:
