The Secretary of State for Business, Energy and Industrial Strategy
(Greg Clark):
With your permission, Mr Speaker, I shall make a statement about
the takeover bid by Melrose Industries plc for GKN plc. On 29
March, Melrose announced that holders of 52% of GKN shares had
accepted its offer, and as of last Friday, the figure had reached
88.5%.
As I informed the House on 27 March, the Enterprise Act 2002 sets
out three circumstances in which a takeover can be referred to
the Competition and Markets Authority on public interest grounds.
They are financial stability, media plurality and national
security. Any such reference must take place within four months
of the completion of the transaction, and must result from a
quasi-judicial decision, made 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 are 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
have 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 receive 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 powers to inspect
information and facilities to ensure the protection of classified
information.
Those undertakings are combined with the undertakings that
Melrose agreed to make in response to my letter of 26 March,
including undertakings not to dispose of the aerospace business
for at least five years without the Government’s consent; to
maintain a UK stock exchange listing for at least five years; to
ensure that the business remains headquartered in the UK, and
that a majority of directors are resident in the UK; to ensure
that both the aerospace and Driveline divisions retain the rights
to the GKN name; and to guarantee that spending on research and
development will take place on at least GKN’s previous level,
amounting to a minimum of 2.2% of sales for the next five
financial years.
In important respects, those undertakings go beyond commitments
given by the previous management team. Melrose has also agreed to
meet my officials and me every six months to provide updates on
its ownership of GKN.
On the basis of the commitments given relating to national
security, the Ministry of Defence concluded that statutory
intervention was not required. That is consistent with the other
assessments that I have received. On the basis of the assessments
that I have considered and the undertakings that have been
entered into, my judgment is that there are not reasonable and
proportionate grounds to make a statutory intervention on the
grounds of national security.
GKN is a very important business, performing vital work in
industries—aerospace and automotive in particular—with an
expanding global market 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 best be run: it is an
essential part of the competitive business environment for which
Britain is renowned.
The 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 has applied. The commitments that
have been made reflect the strong interest of
stakeholders—including employees, UK taxpayers, suppliers, and
research and development partnerships—in knowing the future
intentions of a bidder, provided in a way that is binding. These
responsibilities, which broadly reflect those placed on directors
of ongoing businesses by section 172 of the Companies Act 2006,
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 implemented. 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 in
both the spirit and the letter, and to create a strong future for
GKN, its employees, its suppliers, and the industrial sectors in
which it will play a major role.
I gave the House a commitment 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 that I have done so, and I commend my
statement to the House.
2.04 pm
(Salford and Eccles)
(Lab)
I thank the Secretary of State for giving me advance sight of his
statement.
There are two issues that I must raise today: the fact that the
reported assurances obtained by the Government, both in the
letter of 27 March and subsequently, are not sufficient to
guarantee the security of the long-term prospects of the company
and, indeed, the workforce; and the inadequate capacity of the
takeover regime to protect companies outside the very limited
grounds of national defence, media plurality and financial
stability.
First, as I made clear last month, the assurances obtained by the
Government in Melrose’s letter of 27 March were sadly inadequate.
Apart from the first five assurances which were post-offer
undertakings, what was in the letter was completely
unenforceable. For example, there were no post-offer undertakings
on maintaining employment or tax residency, which could easily
constitute such undertakings. Indeed, the maintenance of
employment is vital to our national security, and the loss of
these jobs will cause the diminishment of vital skills that are
integral to our defence industry.
Putting aside issues of enforceability, what of the assurances
that have been reported since 27 March? The reported veto power
that the Secretary of State for Defence has to stop the sale of
certain businesses will not, I am afraid, solve the national
security problem. Melrose reportedly has a short-term outlook
which undermines the long term that is required for defence
projects. That is important, and a veto on the sale of certain
parts of the business by the Defence Secretary will not help
significantly. Sadly, the Government’s failure to address the
short-term horizons of Melrose may damage the capability of a
business to deliver projects that could last for 10, 15 or 20
years.
Secondly, our takeover regime is inadequate, and the Secretary of
State is acutely aware of that. If a takeover falls outside the
grounds of national defence, media plurality and national
stability, the Secretary of State cannot act, even though the
takeover may be harmful for the business, harmful for employees,
harmful to research and development, and harmful to supply
chains.
Let us take the case of Unilever. Last year it was threatened
with a takeover, and there was nothing that the Government could
do because the takeover fell outside the three public interest
exemptions. Unilever has since commented on the inadequacy of the
UK takeover regime, and its recent decision to place its
headquarters in the Netherlands was, as reported by the Financial
Times, arguably driven by a desire to escape the poor safeguards
for takeovers in the UK. Labour Members have called on the
Government to broaden the public interest test. The measures that
that the Government have proposed so far are not good enough. We
know that, in GKN’s case, they already had the power to act and
did not do so. However, our takeover rules would not have
prevented Unilever from being taken over had Kraft been prepared
to follow through, because that had nothing to do with any of the
three exemptions.
I agree with the Secretary of State that our takeover regime must
be open enough to encourage foreign investment, but it must also
protect against short-termism and long-term damage to our economy
and national security. Arguably, too often it is short-termism
that prevails. Only this week we heard reports that the hedge
funds that bought GKN shares to make Melrose’s takeover possible
are now targeting Melrose, shorting the company on the stock
exchange.
What we needed from the Secretary of State today was not just a
waving through of the deal, but action, both in obtaining
concrete assurances from Melrose on the future of GKN and its
workforce, and in the form of clear plans to reform and widen our
takeover regime to protect British businesses. I fear that the
short-term predators already smell their next victim—and it is
not just Melrose; it is Britain’s industrial future.
Right from the outset, the hon. Lady has been unable to advise us
of what specific undertakings she thought it was appropriate to
obtain. She needs to understand that as this is a quasi-judicial
decision, the statement that she made that she would block the
bid would disqualify her from making that decision, as the right
hon. Member for Twickenham (Sir Vince Cable) knows to his cost.
The evidence presented to me was that this was a British company
taking over another British company, that no such takeover has
ever been blocked on national security grounds, and that the
Ministry of Defence and the other agencies said there was no
reason for intervention on those grounds. I have to tell the hon.
Lady that the previous directors of GKN themselves said that
there was no reason for an intervention on national security
grounds. She should reflect on the commitments that the Defence
Secretary and I have secured to retain the aerospace division for
at least five years, to ensure that the Government have the right
to approve any future sale of any defence business or asset, and
to invest in research and development to at least the current
level. Not once in the past four months has she engaged in a
similarly forensic way to set out what she thinks would be
appropriate commitments.
The hon. Lady says that the commitments are inadequate, but they
have been given as legal deeds and in some cases set out to the
Takeover Panel as post-offer undertakings. The truth is that she
has had the opportunity to engage with this matter, but having
prejudiced her position by saying from the outset that the
takeover should be blocked, she has given away the ability to
have influence on what the regime should be.
The hon. Lady knows perfectly well what the Government’s powers
on takeovers are, because the 2002 Act was passed under a Labour
Government and sets out those limited powers, which are the same
as in the rest of Europe. The difference between the Government
and the Opposition is that when we came into government, we
reformed those powers to allow post-offer undertakings to be
given, so the situation when Kraft bid for Cadbury and
undertakings were reneged upon cannot happen in the current
circumstances. We have taken an active approach to ensuring that
all stakeholders’ interests are secured, whereas the hon. Lady
preferred to float above it all and simply say no before
considering the evidence. We have proceeded responsibly, and she
would do the employees of and stakeholders in GKN a service if
she engaged more forensically in future.
Sir (New Forest West) (Con)
What are the sanctions if commitments are not honoured?
Sanctions with regard to undertakings to the Takeover Panel are
those for contempt of court, which include everything up to
imprisonment.
(Inverness, Nairn, Badenoch
and Strathspey) (SNP)
I thank the Secretary of State for advance sight of his
statement.
The Secretary of State mentioned holding Melrose to the spirit
and letter of its commitments, but traders have been short
selling £725 million, or 17%, of Melrose stock, effectively
betting against it making a success of GKN. What action will he
take if there is any breach of the spirit or letter of the
commitments?
The Secretary of State did not cover jobs in his statement. I
asked him following a previous statement to what extent he would
require assurances to prevent assets from being stripped and jobs
lost, and not just those in the MOD or national security. What
assurances has he had on the financial restructuring involved in
the takeover, which will mean more debt and less investment at
the core of GKN? How will that situation progress the
Government’s industrial strategy, and can he explain how allowing
the takeover will protect the skilled jobs that we require and
tackle productivity issues?
I am grateful to the hon. Gentleman for his questions. He will
know that one undertaking that has been given is a commitment to
at least five years of research and development investment,
including participation in the joint industry bodies, which have
been a successful part of our arrangements in the aerospace and
automotive sectors and are an important part of our industrial
strategy. That is a valuable commitment that I would have thought
the hon. Member for Salford and Eccles (Rebecca Long Bailey) and
he would welcome.
The previous GKN management criticised the commitment to retain
the aerospace business, saying that it should not have been
entered into given that the sell-off of GKN’s automotive business
had already been agreed to. It constitutes a longer-term
commitment than was made during the latter period of the previous
ownership.
The hon. Gentleman will understand that in obtaining commitments
from a bidder, I have to bear in mind commitments that the
incumbent management have or have not made. No commitments had
been made on the total number of jobs, and indeed the sale
programme involved a majority of the business. One of the
features of today’s results announcement was that the debt of the
previous business was higher than anticipated, and the plans that
the new management have set out include paying it down.
(Telford) (Con)
I thank the Secretary of State for his statement and welcome the
undertakings that he has secured.
The future of GKN was determined by speculators who came on to
the share register in the final weeks of the bidding process to
make a quick profit. Does the Secretary of State agree that that
is no way to determine the future of a great British
manufacturing company, and will he now conduct a review of the
takeover code to ensure that speculators cannot participate in
that way in a vote to decide a company’s long-term future?
I understand my hon. Friend’s concern, and a number of hon.
Members have raised that point before. There are a couple of
things to say about it. First, most people who have bought shares
latterly during the takeover process bought them from longer-term
shareholders, and one way in which a bid can be backed is for
people to sell before the end point of that bid. That situation
was looked at, appropriately, by Professor John Kay, who
published a substantial review. His panel noted that one
suggestion was that voting rights should accrue only if people
had been on the share register for a specified period. The Kay
review concluded:
“We were persuaded that the introduction of such provisions by
legislation or regulation would involve practical difficulties
and would be unlikely to achieve the intended effect.”
That was an expert review by a serious person, but of course in
all circumstances such as this we keep our corporate governance
arrangements under review, and I will certainly do that now.
(Leeds West) (Lab)
I would like to follow up on the point that the hon. Member for
Telford (Lucy Allan) raised. Other countries have a rule that
people must have been shareholders for a certain period before
they can vote on a takeover deal. Some sort of financial
transaction tax would also reduce short-term speculation in
companies that leads to their being taken over in this fashion. I
urge the Government to look again at the takeover code,
particularly for businesses that are so integral to our
industrial strategy and have received a lot of taxpayer funding,
in this case for the R&D work that GKN has undertaken.
I am glad that the hon. Lady mentions the R&D work, which is
very important. The commitments that have been made on R&D,
both to keeping up investment and to participating in R&D
partnerships, are extremely important. She and her Business,
Enterprise and Industrial Strategy Committee asked for
undertakings to be given on that and a number of other issues,
and were not satisfied with the undertakings that were offered. I
persuaded the company to go further and obtained undertakings
relating not only to national security but to R&D and the
ownership of businesses, and I hope she will acknowledge that
that is valuable.
On the hon. Lady’s point about differential voting rights for
shareholders, I mentioned the John Kay report, which her
predecessor Committee scrutinised—I think the right hon. Member
for Twickenham (Sir Vince Cable) gave evidence backing the
report’s judgment. I know that her Committee is correctly
interested in keeping our arrangements up to date, and if she and
her colleagues want to review these matters, what their
predecessors said is a good example of how that can be done.
(Filton and Bradley Stoke)
(Con)
I congratulate my right hon. Friend on his statement, and on the
work he has done on this difficult issue, especially in relation
to securing the five-year guarantee for the aerospace business,
which is unprecedented for a business such as GKN. Indeed, as he
has just said, the last management refused to countenance such an
arrangement. I visited the plant in my constituency a week or two
ago and, despite some cynical scaremongering by some in the party
opposite, the management and workers there are optimistic about
the future and looking forward.
I am grateful to my hon. Friend for his comments. It seems to me
that when we establish a regime of post-offer undertakings, it is
necessary to be active and to apply ourselves to the undertakings
that it is important to secure. It is true that there has never
been any commitment to own an important business such as that for
more than five years, and I think that this will be valuable and
welcomed by the employees in his constituency. I recognise his
assiduousness in visiting the plant and talking to his
constituents who are employed there.
Sir (Twickenham) (LD)
Further to the excellent intervention from the hon. Member for
Telford (Lucy Allan), the Select Committee Chair, does the
Secretary of State accept that the role of the short-term
investors has been highly destabilising? They acquired 20% of the
stock, they forced the takeover through and they are now short
selling. If he is not persuaded of the merits of differential
voting, how does he propose to deal with this problem?
The right hon. Gentleman was not persuaded either. He
commissioned a report, he had a respected and eminent individual
look into this, and he gave evidence to the Select Committee to
say that he was not persuaded. I have described some of the
circumstances involved. Those who bought shares in the latter
stages bought them from people who had decided they did not want
to back the existing management. He knows that I take a great
interest in ensuring that our regime of corporate governance is
the best in the world. The fact that people can invest here with
confidence forms an important part of our reputation. We have
been successful over many years, and of course if the Select
Committee wants to review the experience since the report that he
commissioned, it has the ability to do that and I would be very
happy to participate.
(Redditch) (Con)
The Minister will be aware that the global headquarters of GKN
are in Redditch, and that this has been my first priority ever
since we heard the news of the takeover. Is he also aware that I
spoke to Melrose on Friday, and that it assured me that it has no
plans to shut the Redditch office? It believes that many of the
jobs will be reabsorbed into the functions of GKN. Does he agree
that that is really good news, and contrary to some of the things
we have heard in the media? Will he also comment on observations
in the media about the Airbus relationship? Again, we have heard
that the takeover could have a negative impact in that regard,
but that is not what I have heard from Melrose, which thinks that
the relationship could continue. Can he comment on that further?
I congratulate and applaud my hon. Friend on being active and
engaging with the new management to talk about the important
headquarters function in her constituency. She has indeed secured
good news from the company in that respect. I understand that the
divisional heads of the aerospace and automotive businesses have
been reappointed by the new management. Let us bear in mind that
the incumbent management’s proposal was, latterly, that the
automotive business should be sold, and that it would now be in
the process of being sold. Airbus is clearly an important
company, and there were some comments ascribed to it, although I
do not think that they have been repeated. It will be important
for the new management to set out its plans, so that all
suppliers can have confidence in those relationships.
Mr (Coventry North West)
(Lab)
Is the Secretary of State aware that short selling has been the
decisive factor in this, and that that is a matter of great
concern throughout the House? Also, he has rightly been concerned
about the reputation of Melrose Industries plc for taking
short-term measures. It cuts, closes and sells on at a profit.
That is its reputation and, as far as I am aware, that is what it
has invariably done. He has therefore sought longer-term
undertakings—and five years is a significant period—that will
keep the plants going and ensure that the company redoubles its
commitments. However, his statement contained no indication as to
whom those commitments are to be made, except presumably the
Takeover Panel. What powers does the panel have to impose binding
sanctions or, if necessary, to take the company through a legal
process that he claims in his statement will be legally binding?
On these crucial issues, he seems to have made no progress at
all.
This is the first time that any such commitment has been given on
the ownership of assets for a period of five years. I have been
active in establishing this regime, and I think the hon.
Gentleman knows that, in my engagement with manufacturing and
other industries, I have considered carefully the strategic
importance of continued investment and stability. In the final
analysis, there was a greater commitment to stability of
ownership from the bidder than there was from the incumbent
management. On the question of enforceability, I will place in
the Library of the House the deeds that have been entered into in
favour of the UK Government by the company. Some of them are
under the Takeover Panel regime. As I said to his colleague on
the Labour Front Bench, the effect of this new regime is that
there will be sanctions up to imprisonment for a breach of those
undertakings.
(Stirling) (Con)
I welcome the encouragement that my right hon. Friend gave to the
Chair of the Business, Energy and Industrial Strategy Committee
to look at the issues surrounding this takeover, and I am sure
that the Committee will do that. Importantly, he also pointed out
that this was a contest between two British management teams.
Does he agree that the British taxpayer should expect companies
that receive public money, either through contracts or through
research and development, to be prepared to give an undertaking
to take a long view when it comes to investment decisions?
That is right, and I would also welcome consideration of these
matters. Right from the beginning, I have made a commitment to
the House that I would take a considered, comprehensive view and
use the powers that I have, and that where I did not have
statutory powers, I would say what I expected. When it comes to
research and development, to the ownership of assets and, for
today’s purposes, to national security, a long-term commitment is
required, and it has been important to obtain undertakings in all
those areas. I hope that the Committee will take a look at this.
(Birkenhead) (Lab)
In his statement, the Secretary of State said:
“GKN is a very important business, performing vital work in
industries—aerospace and automotive in particular—with an
expanding global market in which British innovation and
excellence offer great opportunities.”
Does he understand from his regular meetings with Melrose that it
is thinking of adapting its business model so that these vital
interests can be kept for a longer term than they would otherwise
have been? If not, would this British company consider selling
first to another British company?
I am grateful to the right hon. Gentleman for his question,
because I wrote and said that deliberately. I regard this
company, operating in the sector that it does, as having an
important long-term role. One of the reasons that there was a
vigorous contest for this business was the recognition that there
are immense opportunities involved. It is my purpose as Business
Secretary to ensure that we reap those opportunities. That is why
I requested what was in effect a change to the previous
commitments that this company or any other had made, and I was
able to do that on the aerospace side. As I said in response to
the hon. Member for Inverness, Nairn, Badenoch and Strathspey
(Drew Hendry), it was clearly not possible to extract another
commitment on the automotive business, given that the incumbent
management had committed to selling it forthwith. In the spirit
of what the right hon. Gentleman has said, I think that he will
reflect on what has been obtained for the first time in the UK
takeover—namely, a commitment to a much longer-term perspective
than had been the case, including the right for the British
Government to approve any subsequent purchaser of defence
assets—and agree that that is a significant step forward.
(Hitchin and Harpenden)
(Con)
I draw the House’s attention to the fact that, in the dark days
before I came to this House, I spent several years in the City
advising on mergers and acquisitions, and Melrose was one of the
companies that I advised several times. Bearing that in mind,
while there is of course a narrow range of scenarios in which the
Government can intervene on a quasi-judicial basis, as the
Secretary of State has already set out, will he confirm whether
the Government will always ensure that we have an open globalised
economy based on competition, not one in which politicians will
capriciously intervene, which would be the approach of the Labour
party?
That is the right approach. The UK’s reputation for being a
dependable place to invest and do business is based on clear
rules and principles, and we have benefited from that. We make
significant investments in the UK economy, we make significant
investments in overseas companies, and we hold big assets. That
is important to us, and we should be a trading nation, which
means that we should be open to investment as we invest in other
countries. That is the heart of our approach. However, it is
important to keep the regime under review, and where there are
long-term interests, such as in research and development, it is
right that we have introduced an ability during a takeover bid to
extract indications of how a bidder would approach things. That
is what we have done in this case.
(Birmingham, Erdington)
(Lab)
It is a bleak day for British industry and British workers when a
259-year-old icon of British engineering excellence falls prey to
a hostile takeover thanks to hedge funds moving in to make a
quick killing. We will hold Ministers and managers to account for
the promises that they have now made. Crucially, does the
Secretary of State agree that the time has come for a fundamental
review of our corporate takeover regime, because the idea that
the British national interest can be sold down by the river by
hedge funds moving in to buy 20% of a company is fundamentally
wrong?
The hon. Gentleman talks about employees’ interests, and he has
fulminated about the bid for a company that has an important
plant in his constituency, but he has not made a single request
or proposed a single safeguard to protect those interests. I do
not know whether he has met the new management of GKN—I do not
think he has—but my hon. Friends the Members for Filton and
Bradley Stoke (Jack Lopresti) and for Redditch (Rachel Maclean)
have made the effort and have discussed the important commitments
that are being made, and the undertakings that I have secured
will contribute to employment stability. The difference between
my hon. Friends and the hon. Gentleman is that they have rolled
up their sleeves and got involved, whereas he has contented
himself with making slogans from the Back Benches.
Mr (Rayleigh and Wickford)
(Con)
The aerospace division is the jewel in GKN’s crown and is a vital
part of Britain’s defence industrial base, so as a former
Ministry of Defence Minister, I particularly welcome the
guarantees that have been provided about the future of that part
of the company. Will the Secretary of State say a little more
about how he has worked closely with the MOD on that? Will he
also assure us that the MOD will be a part of the six-monthly
reviews?
I will indeed, and I am grateful to my right hon. Friend, who
speaks with considerable authority not just as a former MOD
Minister, but as an ex-serviceman. Defence considerations are
important, and I work closely with the MOD, which has provided a
comprehensive assessment. That is the proper basis on which those
with expertise in such matters can say what is required to
safeguard national security, and I promised this House that I
would abide meticulously by the expert advice that I receive. I
am glad that I have had access to that expertise and have made my
decision based on it. Of course, when it comes to considering the
future opportunities for this company, our engagement through the
industrial strategy is as important in the defence sector as it
in the automotive and civil aerospace sectors.
(Birmingham, Northfield)
(Lab)
The Melrose takeover of GKN was approved by 52% to 48% after 20%
of the company had been snapped up by hedge funds. The Secretary
of State has heard calls from both sides of the House for those
with short-term interests to be excluded from making decisions on
takeovers and for the public interest test to be expanded to
include questions about research and development. He has rejected
those calls today, but he says that he keeps matters under
review. What form will his review take, and when does he expect
it to report?
On the hon. Gentleman’s first point, I have said to many
colleagues in the House that when it comes to shareholdings,
every purchaser in the latter stages has bought from a
longer-term shareholder, who has in effect expressed a judgment
on the company. This Government, previous Governments and this
House have looked carefully at the rights of different classes of
owners and have concluded that the hon. Gentleman’s suggestion
would not be the right reform. However, he knows me well and I
will of course consider the assessment of the conduct of this
bid, but it would be wrong to mislead him by saying that I have
formed a different view. I will take an objective view of the
conduct of the bid, as will others in the House. The grounds for
intervention are specified in the Enterprise Act 2002, which
reflects the requirements across the European Union that every
member state must apply.
(Beckenham) (Con)
The old management was British, the new management is British,
and the Secretary of State appears to have secured guarantees
from the new management that it will do certain things that the
old management had not guaranteed. Does that not imply that those
who are working for the new GKN should sleep slightly more
soundly in their beds?
My hon. Friend puts it well and succinctly. Any takeover bid will
obviously involve some anxiety for employees with long service,
but whether or not the bid had succeeded, this was always going
to be a period of change for GKN employees. As a result of the
commitments that have been given, they can have more certainty
about a confident future than would otherwise have been the case.
(Bristol North West) (Lab)
In the Secretary of State’s previous statement on this issue I
asked two questions: whether the Government would ask Melrose for
a commitment to the aerospace division of longer than five years,
based on advice both from key customers and other stakeholders;
and whether the Government would have a conversation with Airbus
about the consequences of a short-term commitment of five years?
Will the Secretary of State confirm to the House whether he asked
Melrose for a commitment of longer than five years and whether he
had a conversation with Airbus? If not, why not?
On the hon. Gentleman’s first point, the commitment to five years
is the longest that has ever been given and was not something
that Melrose was willing to offer the Business, Energy and
Industrial Strategy Committee. In fact, the further undertakings
that have been entered into on defence matters, which are of
course in the aerospace division, go beyond that period.
I mentioned in reply to my hon. Friend the Member for Redditch
(Rachel Maclean) that Airbus’s chief executive has not repeated
the reports that were made previously. I have discussed the
matter with Melrose and its intention is to develop a
relationship that it hopes will prosper in the future.
(Torbay) (Con)
Given that this is the first time that the process has been used,
the Secretary of State has rightly focused on the legal
undertakings that he has been able to extract from Melrose. Will
he speak a bit more widely about the general discussions that he
has had about the future role of GKN’s assets in his industrial
strategy?
I have been very clear in my discussions with both sides during
the bid. It is important to have equal treatment when taking a
quasi-judicial decision. GKN has an important role to play in our
industrial strategy in two important sectors. GKN will be part of
an aerospace sector round table later this week, and I expect it
to live up both to its responsibilities and to the opportunities
in this most exciting of sectors.
Mr (Glasgow North East)
(Lab/Co-op)
Takeovers are a good thing where they are likely to enhance
value, but it is clear that this highly leveraged takeover by
Melrose is likely simply to load GKN with £8 billion of debt. We
know what will happen, as we have learned the lessons of history:
the company will be broken up and sold off piecemeal to recoup
the debt raised by Melrose to create false value.
We have also seen a lukewarm commitment on R&D. GKN’s current
R&D is at only half to two thirds that of its main
competitors. Why did the Minister not seek a more ambitious
undertaking that the takeover will enhance value and increase
GKN’s R&D spending target to that of its main international
competitors? I echo the sentiments of other Members on the need
to amend our shareholder takeover rules to ensure that short-term
interests of people with no industrial knowledge or understanding
of companies are not permitted to distort the interest of
stakeholders in the long-term value of this company.
For the first time in British corporate history, we have secured
a commitment to spend, as a minimum, what the incumbent is
already spending on research and development—that should be
welcomed. Obviously, the reports of accounts and the disclosures
that will need to be made to the markets will shine a light on
the debt, but it is striking that it has been suggested today
that £150 million was accounted for by unpaid suppliers’ bills at
the end of the last quarter—I gather that is in the filings that
have been released today—so I imagine the hon. Gentleman will
want to study very closely with a beady eye the reports of
accounts as they are published in the months ahead.
(Luton North) (Ind)
I am reminded of the Cadbury experience when it was taken over by
Kraft. Undertakings were given about the factory in Bristol,
which was sold off almost before the ink was dry on the deal. GKN
is a company of national strategic importance not just to defence
but to the wider economy and, indeed, to the Government’s
much-vaunted industrial strategy. GKN should play a big part in
that future.
If GKN were a German company in Germany or a French company in
France this kind of speculative takeover would be prevented one
way or another. One way to prevent it would be to have
substantial stakeholdings in such companies, and France, in
particular, has done that over many years to make sure French
companies remain French. Will the Government not look to France
and Germany for the best way forward?
Kraft’s takeover of Cadbury is exactly why we changed the rules
so we can now have binding undertakings that are legally
enforceable, unlike the situation that prevailed when the hon.
Gentleman was in government. When it comes to the German system,
in fact there is a substantial record of German companies being
taken over.
The Minister for Digital and the Creative Industries (Margot
James)
Vodafone.
Yes, Vodafone’s takeover of Mannesmann is a classic case. KUKA, a
German robotics company, has been taken over recently, as has
Kabel Deutschland. There is a substantial record of takeovers in
Germany. We have to operate the same public interest tests. What
we have now is an ability to inquire into the intentions for the
medium and long term, and to obtain legally binding commitments
on that. I hope the hon. Member for Luton North (Kelvin Hopkins)
would welcome that, because many of his constituents will benefit
from it.
Mr Speaker
I greatly enjoyed the Secretary of State’s answer to the hon.
Member for Luton North (Kelvin Hopkins), and I hope he will not
take offence if I say that the hon. Member for Luton North was
not himself in government—he looked rather shocked, nay
affronted, by any suggestion that at any time in his career he
might have been. The hon. Member for Luton North is a career Back
Bencher and is immensely proud of the fact.
Mr (Luton South) (Lab/Co-op)
Workers at GKN’s Luton plant in my constituency are world leaders
in ice protection systems for flight-deck windows and fast-jet
canopies, and I believe they will share my dismay that the
assurances the Secretary of State has put in place amount to
little more than the new management picking up the phone and
informing him before it does things that damage our national
security and national interest. Is not the reality of the
quasi-judicial nature of the decision-making process that he and
future Secretaries of State will always veer on the side of
caution, rather than face the prospect of being challenged in
court when a takeover goes through?
I am sure it is an unaccountable oversight that the hon. Member
for Luton North (Kelvin Hopkins) has never served in government.
For the constituents of the hon. Member for Luton South (Mr
Shuker), during the takeover bid, the incumbent management
criticised the commitment to hold the aerospace division for five
years. Given that a majority of the company was to be sold as
part of the incumbent management’s plans, it is fair to observe
that it is not clear there would be any greater stability—I put
it as mildly as that—if the incumbent management had continued,
rather than the new management that shareholders chose to manage
the company.
