GKN’s credit rating was this week (May 29) slashed following a hostile takeover by turn-around specialist firm Melrose in March.
Credit rating firm Moody’s cut GKN’s rating from Baa3 to Ba1 – a rating that’s considered a ‘substantial credit risk’ for investors. Moody’s highlighted Melrose’s “more aggressive financial policy” and GKN’s falling profits as reasons for downgrading the rating.
The £9bn takeover prompted Moody’s to review GKN’s credit rating in April, when Moody’s lead analyst for GKN Matthias Heck said it would investigate “[takeover]-related uncertainties about GKN’s future shareholding structure, capital structure and business profile.”
The latest downgrade follows another downgrade in March, when the prospect of a potential takeover was imminent.
Unite and other critics have highlighted the billions in debt that will be fuelling Melrose’s takeover of GKN – the firm, known for buying up businesses and selling them on for a profit only a two to five years later, has borrowed £1.4bn to pay for the takeover and is also borrowing an additional £1.2bn to pay off existing debt.
The latest downgrade to Ba1 could shake investor’s confidence in the firm and make it difficult for Melrose to raise additional money.
The news of the downgrade comes just weeks after Melrose faced a shareholder revolt earlier in May over bosses’ bonus schemes, with almost a quarter of shareholders rejecting pay policies that saw four executives share £160m last year.
Unite general secretary Steve Turner said that the union will continue to fight for its members in GKN and for the thousands of jobs that workers and their local communities depend on.
“We are and will continue to keep maximum pressure on Melrose to deliver on its offer commitments to invest for the long term,” he said.
“And anything that threatens that investment, our members’ jobs, workplace skills or world class innovation in the business will be resisted by this union both politically and industrially.”
After the UK’s most contentious and bitterly fought takeover in a decade was approved, Unite has continued to lobby for an overhaul of the UK’s notoriously lax takeover laws.
Turner has highlighted “easy measures that would go a long way” to protect British businesses, including prohibiting trading in target corporations from the launch of a hostile bid, rewarding long-term shareholders with preferential voting rights, ensuring economic and social considerations are addressed as part of any bid and also ensuring a wider stakeholder agreement is reached as an integral part of the bidding process.
“We must act now to strengthen the ability of government and stakeholders to protect British companies from corporate vultures looking to make a quick buck against the national interest,” he said.