The battle for one of the most important parts of this country’s manufacturing industry is now reaching its end game and the ball is firmly in the City’s court.
Predator Melrose has juiced its hostile and highly controversial bid for British metal basher GKN by a bit, taking it to £8.1bn in cash and shares, from £7.4bn.
Melrose, which takes over and restructures manufacturers before selling them on, has described this as its final offer for a business that employs 6,000 people in the UK, 59,000 globally, and has interests ranging from aerospace to car parts.
As part of its defence GKN has agreed to merge its car unit with America’s Dana and hand £2.5bn back to its investors.
In the meantime, the Pensions Regulator has raised concerns about the impact of the bid on the company’s deficit laden scheme while a cross party group of MPs have called for it to be blocked. Unions are also spitting tacks.
But it’s the City, and its big investors that are now in the box seat.
Will they hear the voices of those critics?
Research by the International Transport Workers Federation (ITF) has found over 12 per cent of Melrose’s shares are being shorted, a practice engaged by hedge funds seeking to profit from falling share prices. Many also have long positions in GKN.
Were Melrose to win, its shares would likely take a hit (bidders’ share prices typically do) while GKN’s would go up.
As such, those hedge funds will be strongly motivated to back Melrose. Stewardship? That can go hang. According to the ITF, many of them have the self same paragraph devoted to it on their websites, which makes it look like a cut and paste exercise and shows the low priority they accord to it (the ITF research has been submitted to the Financial Reporting Council, a watchdog).
However, in addition to the hedge funds, attracted by the prospect of a short term bung, are the long only institutions that ought to take a longer term view.
Part of that view should include a consideration not just of the debatable financial merits of Melrose’s bid, which GKN persuasively argues undervalues the company and its prospects, but also the bigger picture.
Concerns over bids like this one are mounting and questions are being raised over whether the UK Government should play a more active role when it comes to comes to attempts to take out companies in sectors seen as crucial to the UK’s future, especially in the wake of Brexit.
Those questions will only mount if this bid succeeds and it ultimately results in the company being packaged up and sold off overseas a few years down the line.
If the City wants to retain control over takeovers and mergers – and the case for the sort of national interest test the UK used to have and most other countries still apply is a strong one – it would do well to pay heed to them.
GKN’s shares barely moved in response to the improved offer, perhaps an indicator that that could happen.