Brief synopsis of BEIS Committee's evidence session on the takeover of GKN by Melrose

The House of Commons Business, Energy and Industrial Strategy Select Committee today took evidence from GKN, Melrose and the Unite union on Melrose's proposed takeover of GKN. 

Panel 1 witnesses: Anne Stevens, Chief Executive, GKN, and Jos Sclater, Group Finance Director, GKN

Mark Pawsey MP asked about the performance of GKN and the profit warning last year. Anne Stevens explained the cuts that had been required, especially in aerospace, where there were defective products and problems with over-inventory, which had been corrected.

Jos Sclater explained most of GKN ran at over 8% margins. It had been a great achievement to grow the business so rapidly in recent years. Asked if GKN would be doing the same things it were not for the bid, Anne Stevens said there was a strategy to increase sales. 

Peter Kyle MP asked about changes Anne Stevens had made in the management team and at board level.

Stephen Kerr MP said Melrose had accused GKN of copying their plans. Anne Stevens explained that GKN had a long-term strategy and could not see how a short-term programme as proposed by Melrose could work.

Jos Sclater stressedd the company was interested in long-term growth as well as improving margins. Melrose was only looking at improving profits over the next three to five years.

Committee chair Rachel Reeves MP asked about the implications for jobs in the UK of GKN’s plans for growth. Anne Stevens said some elements of the business would be automated, but the company would be working closely with the unions.

Drew Hendry MP asked why the pension schemes had been allowed to fall into deficit. Jos Sclater said this had been a result of interest rate changes, but the plan was to have growth that would outperform the pensions scheme. He pointed out that last year £250 million had been put into the pension scheme and the dividend to shareholders had been £150 million.

Anna Turley MP asked about GKN’s role in supplying the American defence industry. Rachel Reeves extended that line of questioning to talks with Dana.

Anne Stevens said GKN had told Melrose they would happily extend the deadlines for a shareholder decision to after the announcement of the American government’s decision on a contract.

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Panel 2 witnesses: Christopher Miller, Co-founder and Executive Chairman, Melrose Industries, David Roper, Co-founder and Executive Vice-Chairman, Melrose Industries, and Simon Peckham, Co-founder and Chief Executive, Melrose Industries

Albert Owen asked what made Melrose think they could do a better job. Simon Peckham said Melrose would take control of GKN’s businesses away from the centre, give responsibility to local businesses and remove the main board.

Questions from Albert Owen and Rachel Reeves focussed on how much was being borrowed and value for shareholders. Rachel Reeves also asked about the proposed new management structure. Simon Peckham said the board would go because of duplication and because they felt GKN’s businesses should be run locally.

Mark Pawsey asked about Melrose’s knowledge of the GKN business and how they know they would be successful. Simon Peckham said Melrose’s plan was in line with the government’s industrial strategy. He said Melrose actually had a longer-term strategy than GKN, better access to capital markets, they wanted to invest in R&D and intended to reform GKN which was under-performing. The ‘strap line’ was that Melrose would own GKN for three to five years but in that time they would act as if they would own the business forever, wording which was questioned by Peter Kyle.

Vernon Coaker raised questions of national security and about discussions with the American government and the Committee on Foreign Investment in the United States (CFIUS) about defence contracts.

Anna Turley asked about Melrose’s true plans and record on R&D. She challenged the claim that Melrose measured its success by the value it delivered to shareholders and how expenditure on R&D could produce such value.

Drew Henry MP asked about Melrose’s commitment to looking after the GKN pension schemes. David Roper explained what they had done regarding other acquisitions. Simon Peckham said they had already said would commit more contributions to the pension scheme. Rachel Reeves pressed the point about Melrose’s pensions obligations and asked for a letter with more detail about the pensions scheme.

Antoinette Sandbach MP asked on which statements of intent Melrose was prepared to make legally enforceable undertakings. Simon Peckham said they would look at what PIUs could be given and they would be willing to talk to GKN and BEIS about that. She asked for a letter on that subject too. Ms Sandbach also asked about discussions with unions and industrial relations. Mr Peckham said it was too early for that, but Melrose had a good industrial relations record.

Rachel Reeves expressed surprise at the lack of commitment about Melrose’s future plans for the business. Based on their plan to transfer management to local businesses, she was also surprised they had not yet met with the Unite union. Mr Penrose said it had been too early to meet with the union, but they would be willing to do so soon. 

Ms Reeves also asked about director remuneration and learnt that the three witnesses received about £40million each last year out of a total of about £200 million for all 20 of the board members.

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Panel 3 witnesses: Tony Burke, Assistant General Secretary for Manufacturing, Unite the Union, and Steve Turner, Assistant General Secretary for Aerospace, Unite the Union

Stephen Kerr asked if the union thought GKN needed restructuring. Tony Burke said GKN had a long-term plan. The union had concerns, but looked forward to meeting with them.

Replying to Albert Owen (a member of Unite), Steve Turner said the only relationship the union had with Melrose was through their ownership of Brush, where employee numbers had been reduced from 1,200 to 300 in the UK after the Melrose takeover. He said it was ‘incredible’ to say Melrose could get rid of the board and think the company could just get on with it.

Anna Turley asked about Melrose’s record of acquisitions and their commitment to pensions. Tony Burke said it was astounding that they would not give commitments to the Pensions Regulator.

Replying to Peter Kyle about plans to sell off parts of the GKN business, Steve Turner said the big difference was that GKN was happy to sit down with the union and discuss plans. But Melrose had ’no positive approach to dealing with trade unions.’ He thanked the committee for getting Melrose to agree to a meeting.

Vernon Coaker (another member of Unite) asked about the union’s view of whether the Secretary of State should intervene. Steve Turner said it was the duty of the government to intervene, especially because of the defence implications of the takeover.

The minutes of the meeting will be sent as soon as they are available.