Greg Clark statement on GKN/Melrose

Mr Speaker,

I would like to make a statement about the takeover bid by Melrose Industries Plc for GKN Plc.

On 29th March Melrose announced that holders of 52% GKN shares had accepted its offer. As of last Friday, that figure had reached 88.5%.

As I informed the House on 27 March, the Enterprise Act 2002 sets out 3 circumstances in which a takeover can be referred to the Competition and Markets Authority on public interest grounds.

These are financial stability, media plurality and national security.

Any such reference must take place within 4 months of the completion of the transaction and must be taken as a Quasi-judicial decision, that is to say impartially, on the basis of an open mind and solely on the evidence presented.

No grounds were advanced for a reference on the grounds of media plurality or financial stability.

To inform my decision on national security I asked for a comprehensive assessment to be made by the Ministry of Defence and other bodies concerned with our national security.

The Secretary of State for Defence has written to advise me that the MoD has completed its detailed analysis and has agreed with Melrose a set of undertakings, specifically:

•             To ensure that the Government is informed in advance of any plans to divest a business, a component of a business, or assets which engage in activities that the Ministry of Defence considers to have national security implications.

•             To ensure that the Government has early visibility of any prospective purchasers including structures of consortia and persons holding significant influence and control.

•             To prevent the disposal of the relevant business, components of a business or assets without the consent of the Government.

•             To ensure that the Government receives suitable protections from any subsequent purchaser in the event of any future sale of elements of the business.

•             To ensure the continuation of contractual obligations to protect intellectual property and classified information.

•             To ensure the continued maintenance of any capabilities with a national security dimension, and;

•             To provide the MoD with the powers to inspect information and facilities to ensure the protection of classified information.

These undertakings are combined with the undertakings that Melrose agreed to make in response to my letter of 26th March, including to:

•             Retain the aerospace business for at least five years without the Government’s consent.

•             Maintain for at least five years a UK stock exchange listing.

•             Ensure that the business remains headquartered in the UK.

•             And with a majority of Directors to be resident in the UK.

•             Ensure that both the aerospace and Driveline divisions retain the rights to the GKN name, and;

•             Guarantee that research and development will be at least GKN’s previous level, a minimum of 2.2% of sales for at least the next five financial years.

In important respects, these undertakings go beyond commitments given by the previous management team. 

Melrose have also agreed to meet with me and my officials every 6 months to provide updates on their ownership of GKN. 

On the basis of the commitments given relating to national security, the Ministry of Defence concluded that statutory intervention is not required.

This is consistent with the other assessments that I have received. So on the basis of the assessments that I have considered and of the undertakings that have been entered into, my judgement is that there are not reasonable and proportionate grounds to make a statutory intervention on the grounds of national security.

Mr Speaker, GKN is a very important business, performing vital work in industry – aerospace and automotive in particular – with an expanding global market and in which British innovation and excellence offer great opportunities.

This takeover bid has entailed a vigorous debate about which of the two alternative British managements could most credibly reap those opportunities.

The shareholders chose, initially by a small majority, and finally more substantially, new management.

All UK public companies are subject to that challenge of how they can be best run.

It is an essential part of a competitive business environment and one for which Britain is renowned.

This takeover bid has been important in wider ways. It is the first contested bid in which the new regime of legally-binding commitments on future conduct have been made.

These commitments reflect the strong interest of stakeholders – including employees, UK taxpayers, suppliers and research and development partnerships – in knowing the future intentions of a bidder, given in a way that is binding. 

These responsibilities - broadly reflecting those placed on Directors of ongoing businesses by S172 of the Companies Act – are important to ensure that the longer term and strategic interests of our economy are considered and addressed during takeover bids.

Now that such an ability to make post-offer undertakings has been established I expect them to be used.

The new management’s stewardship of these important businesses carries with it important responsibilities for our economy and our country.

I look to the management to honour its commitments, both in the spirit and in the letter, and to create a strong future for GKN, its employees, suppliers and the industrial sectors in which it will play a major role. 

I committed to this House that I would carry out my legal responsibilities seriously, meticulously and fairly, and that I would keep the House up to date at every phase of these proceedings.

I believe I have done so, and I commend this statement to the House.