DEBATE: Should the government block the Melrose takeover bid for UK engineering giant GKN?

Would a takeover bid like this be allowed to happen in France or Germany? (Source: Getty)

Should the government block the Melrose takeover bid for UK engineering giant GKN?

Jack Dromey, shadow pensions minister and MP for Birmingham Erdington, says YES.

The proposed hostile takeover of GKN by Melrose puts a British engineering giant in severe danger of being dismembered and broken up.

GKN is a world-class success story, the pride of British industry which supplies components to companies such as Jaguar Land Rover. GKN also has a strong involvement in British aerospace for military use, including manufacturing parts for the F-35 stealth fighter and the new B-21 bomber.

Melrose, on the other hand, has a stated business strategy to sell any company it acquires within three to five years, to the highest bidder. In addition, it would have to borrow more than £1bn for the deal, and the Pensions Regulator has expressed concern that GKN’s pensions covenant could be put at risk by the takeover.

If a British engineering icon like GKN can be bought by a debt-laden asset stripper like Melrose and subsequently taken apart, it leaves the government’s industrial strategy in tatters.

This would not be allowed to happen in France or Germany, and it must be stopped here.

Read more: Cohort of MPs call for Melrose's bid for GKN to be blocked

Julian Jessop, chief economist at the Institute of Economic Affairs, says NO.

Two sets of managers are competing to convince the owners of a business that they are the best people to improve its performance. This would benefit all concerned – including employees, customers, and taxpayers.

One set is the existing in-house team, the other is a firm that specialises in buying companies that it believes are undervalued and restructuring them before selling on.

I do not know who would do a better job. More importantly, though, neither does the government.

In the case of Melrose and GKN, opponents have raised fears that the purchaser would saddle the company with excessive debt and undermine its pension fund.

However, existing GKN shareholders are being offered a mix of cash and shares in Melrose. If the new managers did mess it up, these shareholders would suffer too. It should therefore be left to them to decide whether the deal is a good one.

Read more: Pensions watchdog "concerned" Melrose bid for GKN could damage pension fund

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