Concerns over Melrose’s recent hostile takeover of GKN were highlighted this week (April 4) when financial analysts Moody’s said it would review GKN’s credit rating for a possible downgrade.
The takeover itself has prompted the decision to review GKN’s credit rating along with the “related uncertainties about GKN’s future shareholding structure, capital structure and business profile,” said Moody’s lead analyst for GKN Matthias Heck.
“Our review will focus on the impact of Melrose as GKN’s future main shareholder, which will depend on the final acceptance level of the bid, the proposed refinancing measures of GKN’s debt by Melrose, and GKN’s future business profile,” he added.
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, is borrowing £1.4bn to pay for the takeover and is also borrowing an additional £1.2bn to pay off existing debt.
Under Melrose’s proposals, GKN will now have a higher debt-to-profit ratio than it has now, which GKN warned earlier this year could adversely affect its pension scheme.
A downgrade to GKN’s credit rating could shake markets’ confidence and make it more difficult for the firm to raise money.
Major concerns on downgrade
“Moody’s warning that it may have to downgrade GKN’s credit rating following the Melrose takeover shows that there are still major concerns in the financial world about this takeover,” said Unite assistant general secretary for manufacturing Tony Burke.
“The assurances that Melrose gave to business secretary Greg Clark last week are insufficient and are not in our view legally binding,” he added.
“Unite is seeking guarantees on long term job security and investment,” Burke noted. “We also believe that the issues we have raised in regard to national defence and security issues have not been addressed. Unite is seeking meetings with defence secretary Gavin Williamson to discuss our legitimate concerns.”
Unite has vowed to fight for jobs and will continue piling on the pressure on the government to intervene as it likewise lobbies for a change to the UK’s notoriously lax takeover laws.
“‘This takeover has put into the spotlight the inadequacy of the UK’s takeover rules which put the interests of short-term speculators over those of the workforce and long-term investors It is a takeover that works directly against the national interest and specifically our national security interests,” said Unite assistant general secretary Steve Turner. “Unite again calls on the Secretary of State, Greg Clark, to stand up for our national interests and call in this bid, bringing this sorry episode to a halt.
“We need a complete overhaul of UK takeover regulation if we’re to both stop the on-going fire sale of UK Plc. Some easy measures that would go a long way; prohibit trading in target corporations from the launch of a hostile bid, reward long-term shareholders with preferential voting rights, ensure economic and social considerations are addressed as part of any bid and a wider stakeholder agreement 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.”