GKN: Proposed Takeover by Melrose — House of Commons, 2018-03-27
Topic: Domestic Commerce
Gregory David Clark (Conservative, Centre-right): With permission, Mr Speaker, I will make a statement about the current takeover bid by Melrose plc for GKN plc Following the announcement of the bid, I spoke to the chief executives of GKN and Melrose to understand their plans, and I have done so again as the bid timetable draws to a close and changes have been made to the original terms. My quasi-judicial role requires me to treat all parties fairly and so I should disclose that I have also had a briefing with the chief executive of Dana Incorporated, which has been proposed as a partner in a transaction with GKN As hon. Members know, the long-standing British manufacturing and engineering company GKN is subject to a current takeover bid from the British company Melrose plc. One of the most important features of the British economy is that we have a vigorous market for corporate control. Business are kept competitive and efficient by the possibility of the current management being replaced by another set of managers if, in the view of their shareholders, they are underperforming and the company could be better run. However, uncomfortable that constant threat may be for incumbent managements, it is an important one, and acts against complacency and inefficiency, and so is in the interests of employees, customers, suppliers and taxpayers as well as shareholders. It is worth reminding ourselves that shareholders include the pension funds on which millions of working men and women rely for a comfortable retirement There are strict and limited grounds for ministerial intervention in proposed mergers. The limited exceptions apply where one or more of the three public interest grounds are engaged. These are those of national security, media plurality and financial stability. The Enterprise Act 2002 gave powers focusing narrowly on those grounds to refer a bid to the Competition and Markets Authority. Such a reference is possible until four months after the completion of a transaction I will make such an assessment following receipt of advice from the Ministry of Defence and other agencies on the final terms of a bid, if it is successful, and I will inform the House immediately if an intervention is launched However, beyond that formal statutory role, I am concerned to ensure that significant takeover bids shall not act against the interests of our economy, employees, or the broader set of stakeholders. It has long been recognised that companies and their directors have duties that extend beyond current shareholders alone. Indeed, section 172 of the Companies Act 2006 sets out a requirement for directors to have regard to, among other things, the interests of the company’s employees; its business relationships with suppliers, customers and others; and the impact on the community and the environment. In my view, this establishes the principle that we expect interests broader than pure shareholder value to be taken into account by directors, and also in the attitude of the Government In the past, some takeovers have had consequences for these groups that were not only deleterious but were at odds with the indications given during takeover bids. For this reason, a new regime was established whereby bidding companies can make legally binding commitments as to their intended conduct in the event of the bid succeeding. Having established this regime, I believe it should be used in takeover bids where the interest of stakeholders is engaged, as is clearly the case here. GKN is a valued employer, directly and through its supply chain, and it plays an important role in Britain’s automotive and aerospace sectors. Through its research and development, it has a vital role to play in our industrial strategy. It benefits from Government-sponsored contracts and participates in sectors that enjoy active engagement from Government-sponsored R&D programmes. It also carries responsibility for a large number of pensions that depend on GKN’s prosperity to fund the pension scheme, which is currently in deficit Melrose’s business model is based on acquiring, improving and selling businesses to new owners after a small number of years. While this approach can have advantages in terms of efficiencies, tensions can arise between it and the need for long-term investment and stability for important relationships. With the deadline for the offer period closing on Thursday, and without prejudice to my use of Enterprise Act powers—which, as I said, operate according to a longer timetable—I believe that Melrose should set out more clearly its intentions towards wider stakeholders and, specifically, make commitments concerning them in a legally binding form before the opportunity is lost with the closure of the offer period Accordingly, I wrote to Melrose yesterday asking it to set out clearly its proposed commitments, including on maintaining the business headquartered and listed in the UK; maintaining a UK workforce and respecting their employment rights, as well as engaging closely with their representatives; continuing to pay tax as a UK taxpayer; continuing to invest in R&D programmes that are crucial to our industrial strategy; investing in the training and development of the workforce, including in apprenticeships; treating suppliers well, including the prompt payment of suppliers; and making arrangements for current and future pensioners that are to the satisfaction both of the trustees and the independent Pensions Regulator In addition, stable ownership and financing is an important part of the underpinning of trusted relationships that particularly characterise the defence sector. That stability is also important for research and development partnerships, which, by their nature, endure over many years, whereas Melrose’s model has been built on short-term ownership. I have therefore sought a legally binding commitment from Melrose to greater continuity of ownership specific to the defence-related businesses and to excluding the option of a short-term sale of this business without the prior consent of the Government. I have also made it clear that in the event of a successful bid, the Ministry of Defence would look to require a legally binding commitment relating to the management of any defence contracts. It is important to emphasise that these would be voluntary commitments by the company, over and above questions of the use of Enterprise Act powers. But I do think it is right that these wider issues of public concern should be addressed by Melrose before the bid closes formally. Melrose has earlier today given a response to my letter that I will place in the Libraries of both Houses, alongside my letter. Subject to the powers that I have described, it is for shareholders of GKN to decide which management team they wish to run their company. But my strong belief is that where broader interests are at stake, and having established a new regime in which legally binding commitments about the future can be given, they should be used before the opportunity to do so expires. I will continue to keep the House up to date at every phase of these proceedings. The House can be assured that I will carry out my responsibilities seriously, meticulously and fairly in representing the public interest in the future of such an important company. I commend this statement to the House.