The success — or not — of Melrose Industries Plc’s hostile takeover of government contractor GKN Plc may be in the hands of UK Defence Secretary Gavin Williamson.
Williamson, who’s only been in the job for five months after a surprise promotion to Prime Minister Theresa May’s cabinet, is weighing whether the ownership change of a manufacturer that dates back more than 250 years poses enough of a security threat to call in the Competition and Markets Authority. While GKN isn’t a major direct supplier to the UK armed forces, it makes components used in planes and tanks procured by the Ministry of Defence, as well as parts for government suppliers including BAE Systems Plc.
Business Secretary Greg Clark has the power to refer the deal to the authority on national security grounds, but his department doesn’t have the expertise to make that judgment, and is deferring to the Ministry of Defence and other security agencies for guidance, according to an official familiar with the matter.
The possibility that Melrose’s £8.1bn ($11.4bn) takeover of GKN could be blocked by the government has emerged just days after the turnaround specialist won an acrimonious battle for control. While the long history of GKN, which emerged from World War II as Britain’s top steel producer, has sparked nostalgia among workers, its role in military aircraft supplies has attracted official scrutiny.
A spokeswoman for Melrose wasn’t immediately available outside of business hours.
Various media reports on Saturday signalled that Williamson and Clark may act, with the Financial Times saying the defence secretary could intervene due to concerns, citing an unidentified government official.
Clark indicated to Melrose in a March 26 letter that he would consult with the MoD over whether to make a referral to the CMA.
In the same letter, he listed binding commitments he wanted the company to make in the event its bid was successful. They included keeping GKN as a UK business, paying taxes, maintaining its British workforce, investing in research and development and apprenticeships as well as making satisfactory pensions arrangements.
The following day, Melrose Chief Executive Officer Simon Peckham largely acceded to those demands and said that as his company is also British, there was no need for the CMA to scrutinise the deal because of national security concerns. Melrose has also said it won’t sell the aerospace division for five years.
“It is not necessary in this case,” Peckham wrote, alluding to the potential referral of the deal to the CMA on national security grounds. “We are wholly committed to securing the UK’s national security.
To alleviate any concerns, we will execute a deed of undertaking in favour of the Ministry of Defence that addresses all aspects of national security.”
In addition to criticism from labour unions and the opposition Labour Party, Melrose’s move on engineering firm GKN has also raised concern from a key customer. Airbus SE has warned Melrose that any reduction in spending on research and development at GKN would make it “practically impossible” for it to hand the company new work.