A bidding war is developing over a potential takeover of British-based engineering giant GKN. On October 13 last year, GKN, which employs 58,000 people across 30 countries in aerospace and automotive engineering, 6,000 of whom are at 14 sites in Britain, issued a profit warning, citing lower than expected aerospace revenue and “operational challenges” amongst other factors. Shares in GKN fell over 7% that day in early trading.
Spying the opportunity for big scores, “turnaround specialists” Melrose have launched a hostile takeover bid of GKN, the first such bid of a FTSE 100 company in a decade. Melrose Industries Plc is a British-based investment company specialising in the acquisition and “performance improvement” of underperforming businesses. It holds no sentiments. In reality, Melrose specialises in buying firms cheaply and selling them on for profit within five years.
This has begun to develop into a major bidding war with General Electric, Siemens, Carlyle and unnamed Chinese companies entering the fray.
GKN gave a scathing rebuttal to the predatory £7 billion bid from “vulture capitalists” Melrose, labelling it “opportunistic” and undervaluing the business. Melrose, salivating, told the Stock Exchange that there would be significant operational and commercial “benefits” arising from its ownership of GKN’s businesses, “reversing a history of existing GKN management not delivering on margin targets”.
Melrose announced the posting of an offer document in a letter to GKN’s shareholders. In response, the present GKN management made a statement in attempt to get the shareholders, as well as the trade unions and workers, to line up behind them. Seeking allegiance, the management of GKN said that it is still a “strong businesses” with considerable “potential”. GKN plans to return £2.5 billion to shareholders partly through selling its powder metallurgy business. By rejecting the Melrose offer, they say that shareholders will see 100% of the value created; with Melrose they will lose over 40%, so people should stick with GKN. Mincing no words, they say that Melrose’s stated premium of approximately 28% over the closing share price of GKN on January 5 is fake.
“This Offer is derisory. Melrose is trying to buy GKN on the cheap,” said the GKN management, who are advised by J.P. Morgan and UBS, which is Corporate Broker to GKN. “GKN’s new leadership team is committed to maximising shareholder value.” The management team claim to offer “a step-change in operational performance and financial returns”.
Detailed in Melrose’s own bid document, the figures for fees and expenses follow earlier revelations that the four top executives of Melrose stand to make a reported £285 million between them in “incentives” if they boost GKN’s share price following a successful takeover. In echoes of the “cowboy capitalist” takeovers of the 1980s, the potential total amount to be pocketed by Melrose executives and their advisors from a successful takeover could be upwards of £425 million.
As so often in capitalist competition, we have a battle of the bandits, with different sides sizing up opposition to eat their rivals. Workers can have no truck with any side in their squabble over markets or control over productive forces.
GKN is a major industrial giant, a FTSE 100-listed company. Seen as a “nuts and bolts” engineering company, it provides parts across the whole of British manufacturing, both for civilian and military uses.
The current crisis and bidding war have brought to the fore plans to split the company into two. This would divide the automotive side of the company from the aerospace. Aerospace engineering at GKN plays a significant role in the militarised economy: GKN is a major defence partner to Airbus and Boeing and supplies and maintains equipment used by the Royal Air Force and the Army.
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said the separation of units has “been on the cards for years”.
“Historically, the pension deficit has held the group together, but with the sprawling footprint likely to have contributed to recent profit warnings, the reasons for divorce now seem to outweigh the costs of splitting,” he said. “The money to be made from a split is likely to have been what drew turnaround specialist Melrose to the table in the first place.”
Now the cherry-picking can start, while other commentators are speculating that the scale of the shortfall in GKN’s pension funds, said to be in deficit by £2.1 billion at the half year, could become a “poison pill”, particularly given the company’s pending triennial review of its pension scheme. This brings to mind the situation at TATA steel, who managed to “review” pension rights with unions in order to “save” the company. For now, GKN maintains that the deficit is less than half of the figure being quoted, but through the claims and counterclaims, disinformation about this “deficit” is preparing the ground for attacks on pensions.
Indeed, the whole notion of a pensions deficit is capital-centred and part of what helps pensions to be treated as fair game both by companies and the circling vultures. Pensions are a rightful claim by retired workers on the value they themselves created, a claim that the owners of capital are constantly trying to claw back through pressurising workers and their unions into making concessions.
The crisis of GKN and ensuing bidding war also come at the time the Government is promoting its much vaunted “industrial strategy”, and expose how any such so-called strategy is a mere phrase when subject to private monopoly interests and the competition between them.
“The short term financial engineering of Melrose’s bid is totally at odds with the long term approach and investment that is needed to power the government’s industrial strategy,” said Unite.
In fact, there is no “strategy”. A strategy requires conscious control and planning. It also needs an aim, and this further underlines the need for workers taking their own independent stand. Monopolies like GKN, like the collapsed Carillion before it, have concentrated such productive forces across vast swathes of vital infrastructure that the future of this production cannot be left to chance. It is the workers, with their human-centred as opposed to capital-centred perspective, who are capable of aiming industrial strategy at the general interests of society.
Throughout all of these developments, speculations and mixed messages, it is imperative that workers look at matters from their own perspective.
The main union concerned, Unite, has scrutinised the prospects of such a takeover and the inevitable destruction of productive forces it will bring about, and has taken a stand against the Melrose bid. The union is urging Business Secretary Greg Clark to use his powers under the Enterprise Act (2002) to block Melrose’s bid in the public interest. Unite is also calling on the House of Commons Business, Energy and Industrial Strategy Committee to insist that Clark review the takeover bid.
“The Business Secretary cannot duck his responsibility. He needs to act in the national and public interest and block this bid which will ultimately result in parts of successful engineering being atomised and vital engineering skills and expertise lost,” said the union.
“Melrose’s bid, which is based on borrowing vast amounts of cash to bung to shareholders, will see GKN saddled with £1.3 billion of debt in a move harking back to the ‘cowboy capitalist’ takeovers of the 1980s,” they further add, and also point out that Melrose’s promise to put millions into the pension fund must be viewed with caution as this will be paid for through borrowing and job losses.
Unite reveals that, according to figures produced for the union, Melrose will spend an estimated £83 million, before tax, in its efforts to acquire GKN. £6 million of that will be used for public relations alone. Unite assistant general secretary Steve Turner commented: “The sums of money that Melrose is prepared to spend to acquire GKN are astronomical… Its plan is to load the business with debt to then sack workers and break up the company to pay back their lenders. This is the sort of casino capitalism our country can very well do without. It is always people and communities who pay the price for the short-termism of the turnaround merchants.”
Unite assistant general secretary for manufacturing Tony Burke added: “GKN is at the cutting-edge of electric vehicle technology and aerospace engineering. It is a vital component in making the UK government’s industrial strategy a success. The business secretary Greg Clark must use the power he has to act in the national interest and intervene to block this bid, as well as strengthening takeover laws to ensure public and social interests are put first. Unite is clear, we will not allow two sets of management to compete for the affections of shareholders by promising faster and deeper cuts. For Unite defending jobs always comes first.”
In other words, this is not a matter of being sucked into the inter-monopoly competition, to side with the “good” capitalists against the “bad”. Neither is it a matter of giving in to the pressure to solve the problems faced by the owners of capital and their management representatives for them.
In this respect, it is important for workers not to get diverted. This is particularly crucial given the intervention by the US in the issue. Unite reports that US congressman Neal Dunn wrote to the Committee on Foreign Investment in the US (CFIUS), claiming that Melrose is not qualified to own GKN due to its lack of any background in defence contracting. GKN is important to US imperialist interests as a result of its involvement with the F-35 and F-18 fighters and the Chinook and Black Hawk helicopters.
The workers of Unite the union, as well as the workers’ movement as a whole, have a strong anti-war tradition . It is by sticking to such principles that the union’s stands are at their most powerful. Particularly at this time, a stand on principle in favour of peaceful production cuts to the core of the arrangements that deny workers a voice and points to the alternative of a renewed democracy and an anti-war government.
From the workers’ own perspective, they have their own problems to solve. In particular, workers are faced with the problems of guaranteeing their jobs, conditions of work and their claims on the value they produce. Those claims are both immediate, such as pay and pensions, and social, such as the need for infrastructure and the social programmes that maintain the society on which they rely. Workers are also confronted by all of the dangers of an increasingly militarised economy and pro-war government, which goes hand in hand with the anti-social direction of cuts and marginalisation of workers from any decision-making. Faced with a crisis at GKN, it is for the workers to lay their claims, demand their rights and that production for peaceful development in the interests of society continues. Workers must also organise to have the decisive say over their economy, and demand that the militarisation of the economy be brought to an end.
1. Unite’s official policy on Trident (seehttp://www.unitetheunion.org/campaigning/events/unite-policy-conference-2014/unite-trident-policy) is subheaded “Peace and Disarmament”, and opens with the words: “The trade union movement has always been in the forefront of the struggle for peace and international disarmament. Unite is proud to stand in that tradition. Our vision is of a world where wealth and labour are devoted to exclusively peaceful purposes, and where war is superseded by the control of disputes through international law and the United Nations.”
Further, it states: “This progressive outlook is more relevant than ever when Britain faces an acute budget crisis and public spending cuts are high on the political agenda… This makes the question of diversifying British manufacturing industry away from its over-reliance on defence spending urgent.” While recognising the current reliance of many jobs on nuclear programmes and military production, the policy is to “promote the smooth transition of manufacturing to non-military production wherever possible.”
In addition, Unite Chief of Staff Andrew Murray is the former Chair of the Stop the War Coalition, and has been speaking recently in a union capacity at the Coalition’s “Why We Need An Anti-War Government” tour.