UPDATE: Melrose Defends Pension Talks Amid Buyout Target GKN Criticism

LONDON (Alliance News) - Melrose Industries PLC reiterated Tuesday it was in "constructive ...

Alliance News 13 March, 2018 | 2:34PM
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LONDON (Alliance News) - Melrose Industries PLC reiterated Tuesday it was in "constructive discussions" with hostile takeover target GKN PLC's pension trustees and defended its "exemplary" pensions record after GKN branded Melrose's previous pension criticisms as "misleading."

"We are working towards an agreement on the GKN pension schemes which will strengthen them and better protect GKN's pensioners," Melrose Chairman Christopher Miller said. "We look forward to continuing our constructive discussions with GKN's pension trustees now they have concluded their discussions on the proposed sale of GKN Driveline to Dana."

"Melrose is an exemplary custodian of pension schemes," Miller added. "We have already set out that we will invest GBP150 million in the GKN pension schemes within the first 12 months of ownership. In addition, we have committed to make annual payments to the GKN pension schemes at a level greater than that which GKN pays into the schemes today."

Melrose's comments came shortly after earlier on Tuesday FTSE 100-listed engineering firm GKN hit back against criticisms by Melroseof its pension deficit funding proposals amid its proposed USD6.1 billion automotive unit merger deal with Dana Inc.

GKN - citing comments by the pension scheme trustees - criticised "misleading" comments made by Melrose on Monday with regards to its pensions provision.

Melrose - a FTSE 250-listed industrial turnaround firm - raised its offer for GKN to GBP8.4 billion from the initial GBP7.1 billion announced in January. Within the new offer announced on Monday, Melrose took aim at what it saw as inadequacies in GKN's pension proposals after its merger deal with Dana Inc regarding its automotive unit.

Melrose's increased bid followed the announcement last Friday that GKN had reached an agreement to combine its automotive Driveline business with New York-listed engineering firm Dana Inc in a USD6.1 billion cash-and-shares deal.

Under the deal, GKN would transfer USD1.0 billion of a pension scheme deficit to the new, enlarged Dana.

On Monday, Melrose reiterated its belief that the Dana agreement was a "bad deal" for GKN shareholders in what it termed a "hasty fire sale".

As part of the offer, Melrose argued the Dana deal - in addition to the potential sale of GKN's powder metallurgy business - would see pension liabilities for GKN's remaining aerospace business stand at 10 times profit. This is more than three times the FTSE 100 average, Melrose argued.

Melrose Chairman Christopher Miller said: "The deal signed with Dana means that over two thirds of the group's gross pension liabilities, including approximately 85% of the gross UK pension liabilities, will remain with the GKN group following the sale even though less than half of the profits of the group are retained. This brings a material increase in risk to the remaining group."

Melrose added it had been an "impeccable steward" of pension schemes in the past and has "strengthened every single pension scheme we have acquired". Melrose asserted its was in "constructive talks" with the GKN Pension Scheme Trustees. Melrose added it had already committed to higher annual payments than GKN currently contributes.

"It is our view that it is irresponsible of the GKN Board to proclaim a value maximising strategy whilst overburdening its only remaining business with liabilities of this nature," Miller said. "Shareholders should be concerned that the future GKN Aerospace business may be hampered in its ability to compete and invest on the global stage."

Later on Monday, however, the trustees of GKN's pension scheme argued GKN would make "very substantial cash contributions" to its pension schemes after the Dana deal. These contributions, the trustees said, would be "sufficient to make the schemes fully funded".

The trustees also added a significant caveat to Melrose's assertion it was having "constructive talks" with the trustees.

"The trustees have had a number of discussions with Melrose but have yet to receive proposals which address the key concerns that the trustees have raised," the trustees explained. "The trustees would very much like to progress these discussions."

GKN Chief Executive Officer Anne Stevens said earlier on Tuesday: "Melrose's failure to engage effectively with the trustees on such a crucial topic as the future of the GKN pension schemes only confirms our view that Melrose, with its financial buyer model, is not an appropriate owner of GKN."

"The trustees' statement illustrates that, unlike Melrose, GKN has properly addressed the pension issues facing the company and, as we eliminate the UK deficit, we look forward to our Aerospace business further re-rating in line with its peers", Stevens added.

Shares in GKN were 1.7% higher at 431.30 pence on Tuesday, Melrose shares were up 1.9% at 217.50p.

By Ahren Lester; ahrenlester@alliancenews.com.

Copyright 2018 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article
Security Name Price Change (%) Morningstar
Rating
GKN PLC
Melrose Industries PLC 154.50 GBX -1.28 -
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