Unite members from Jaguar Land Rover and other car makers will be joining GKN Driveline workers in a show of solidarity tomorrow (Wednesday 7 March) to unfurl a banner calling on Theresa May’s government to block what the union, in a statement, termed “Melrose’s debt-fuelled takeover bid of the British-based engineering firm”.
“Workers at GKN’s Driveline business along with their colleagues in the aerospace and defence business, are fearful that a takeover by Melrose could leave the government’s industrial strategy in tatters and see GKN being sold off piecemeal with jobs cut or shipped abroad,” Unite said.
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The House of Commons (parliament) Business, Energy and Industrial Strategy select committee is today conducting a hearing into Melrose’s hostile bid to takeover GKN and Unite said its assistant general secretaries Steve Turner and Tony Burke were scheduled to give evidence.
“Unite is calling on the secretary of state for business Greg Clark to use his powers under the Enterprise Act (2002) to block Melrose’s bid in the public interest,” the union said.
Under the act, the secretary of state can intervene on issues of national security. GKN is a major defence partner to Airbus and Boeing, and supplies and maintains UK defence equipment used by the Royal Air Force and the Army. In addition to the Typhoon fighter aircraft, GKN is also involved in the F-35 joint strike aircraft, as well as the Chinook and Black Hawk helicopter programmes.”
Unite acting automotive national officer Carol Tallentire said: “GKN’s Driveline business is at the heart of the UK automotive industry and a major employer in Birmingham and the West Midlands.
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By GlobalData“At the cutting edge of electric vehicle technology and supplying major car makers, such as Jaguar Land Rover and Toyota, GKN is essential to the government’s industrial strategy.
“In Melrose’s hands, all that would be put at risk and ministers’ plans for the UK to be a leader in electric vehicles could be left in tatters.
“GKN will be saddled with over GBP1.3bn of debt if Melrose succeeds, while its advisors would pocket upwards of GBP140million in fees. Workers are fearful that they will pay for this debt fuelled payday with their livelihoods with technology and jobs shipped abroad.
“Melrose’s debt-fuelled bid would not happen in France or Germany. Theresa May has said she will act in the national interest. It’s time she did and saved British jobs by ensuring her government stopped the GKN takeover.”
GKN said last week it was “very, very confident” its customers would continue to give it full backing as the parent group battles the bid from manufacturing investor Melrose.
The British supplier said it had received “a number of approaches” and confirmed it had started discussions with Dana to potentially combine its driveline business with the US component manufacturer mainly through equity.
To bolster its case to remain independent, GKN was forecasting sales growth from GBP33m (US$46m) to GBP500m by 2022 with its board ‘unanimously’ rejecting the Melrose attempt, slamming it as “entirely opportunistic.”
Moody’s changes GKN’s outlook to negative
Late last week, Moody’s Investors Service changed to negative from stable the outlook on the ratings of GKN Holdings plc, the finance, investment and holding company of GKN Plc (GKN). Concurrently, its affirmed GKN’s Baa3/(P)Baa3 senior unsecured debt and programme ratings.
“The outlook change reflects the accelerated and more specific plan to separate GKN into the aerospace and driveline businesses, which would likely result in a weaker credit profile,” said the GKN lead analyst at Moody’s Matthias Heck, in Frankfurt.
“The rating is already weakly positioned, and a weakening of its business profile through a spin off or disposal of a significant part of the business would require corresponding capital structure to retain an investment grade rating, which we believe will be challenging to achieve.”
“On 27 February, GKN specified its plan to separate its aerospace and driveline businesses by adding that it aims for a demerger into two listed companies by mid 2019. On 2 March, GKN announced that they are in discussions with the US-based auto supplier Dana Incorporated (Dana, Ba3 stable) regarding a potential combination with GKN Driveline that would be effected mainly in equity. It remains uncertain at this stage, whether an agreement will be reached.
“The negative outlook reflects the risk that GKN might be unable to sustain credit metrics and financial policy in line with an investment grade rating, given a weakened business profile following a split of the company. GKN has accelerated its previously announced plan to separate its two main divisions, aerospace (GBP3.6bn sales in 2017) and driveline (GBP5.3 billion sales in 2017) by mid-2019, which was previously lacking a concrete timeline. The conversations with Dana illustrate that a demerger could actually happen much earlier.”
Moody’s had previously said a demerger, as opposed to an internal separation only, could have a negative impact on the rating, because the separated entities would have a weaker business risk profile, with each unit having less scale and diversification. Moreover, a demerger mainly in equity would leave very little, if any, proceeds that could support the credit profile of GKN’s remaining operations.
Moody’s added: “GKN’s rating has already been weakly positioned, as evidenced by 3.0x gross debt/EBITDA (Moody’s adjusted) as of December 2017, which represents the high end of our expected range for a Baa3 of 2.5x-3.0x. In addition to the envisaged demerger, the company has targeted up to GBP2.5bn shareholder distributions over the next three years, conditional to keeping an investment grade rating, and largely financed with the proceeds from the planned disposal of its powder metallurgy business.
“We therefore expect leverage to remain at the very high end of our expected range for a Baa3 (2.5-3.0x). The rating could come under additional pressure, if the company’s strategic plan, including the realisation of Project Boost, proves less successful than anticipated, or if management
choose to make distributions to shareholders at a faster pace or larger amount than improvement in metrics allows.
“Given the overall weak positioning of the rating, an upgrade is currently unlikely.”
See also: GKN offers stout defence as Melrose continues to circle
GKN issues rosy edrive forecast as it battles Melrose bid
