GKN: Proposed Takeover by Melrose

Wayne David Excerpts

Thursday 15th March 2018 Westminster Hall

[Wayne David (Caerphilly) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Stringer. I congratulate my hon. Friend the Member for West Bromwich West (Mr Bailey) on securing this vital debate. As has already been said, GKN has a long and proud history dating back to 1759, when Guest established the ironworks in Dowlais, in Merthyr, south Wales. I suggest that there is no better pedigree than that. Today, the company has developed and expanded so that it operates in 30 countries and employs 6,000 people in the United Kingdom, many in well-paid jobs.

Let us be clear about the nature and the intent of this takeover bid. Melrose is a hedge fund operator, despite what it might say, and an asset stripper, despite its protestations. As other hon. Members have said, that was clearly laid bare by the statement made by Airbus, which has been widely reported and quoted today. The response of the GKN chairman, Mike Turner is interesting. He said:

“The comments from Airbus that stress the need for long-term investment and strategic vision in our industry emphasise our firmly held belief that Melrose is not an appropriate owner of GKN. Its management lacks the relevant experience and its short-term business model”—

he is being very polite—

“is inappropriate for GKN’s customers and investors.”

That sets out the situation very clearly and succinctly.

I want to focus on the implications for the defence sector in this country. There is a very genuine and real concern about the defence implications of this takeover. GKN is a major defence partner to Boeing and to Airbus, and it supplies and maintains UK defence equipment for the RAF and the Army. Importantly, GKN is very involved with the Typhoon aircraft production; the Chinook and Black Hawk helicopter programmes; the very important F-35 joint fighter aircraft programme, which is coming on-stream now in this country; and the A400M aircraft produced by Airbus. If the GKN takeover comes about, we are likely to see a big question mark over the nature of the successor company’s involvement. Make no mistake: Melrose’s track record shows clearly that it has no interest whatever and no expertise at all in anything related to defence. We are likely to see sell-offs of its defence interests, and that would have major defence implications for this country.

I welcome the Chair of the Defence Committee, the right hon. Member for New Forest East (Dr Lewis), to the debate. He has said that the takeover puts a question mark over the ownership of intellectual property. If that section of GKN is sold to another firm that is located in another country, the intellectual property goes with it. Who knows what country it may end up in? More than theoretically, it is quite possible that some of the intellectual property rights will go to countries that are not friendly to the United Kingdom.

The Secretary of State for Business, Energy and Industrial Strategy has a moral reason to be very concerned about the situation, and he has the practical means to intervene. As has been said, under section 42 of the 2002 Act, he can intervene on the grounds of public interest and in section 58 of the Act, public interest in these circumstances can be defined as placing in jeopardy our national security. If the Secretary of State chooses not to intervene now, it may be too late to ever intervene again. The Secretary of State can intervene only if the turnover of a business that is threatened by takeover is greater than £75 million, or the business has more than 25% of market share. It is possible that once the sale of the company takes place, the sale of the company’s assets through downsizing will mean that the Government do not have the legal base to intervene to protect our national interest. That is why I believe that the Government must act.

The Secretary of State for Defence indicated in his evidence to the Defence Committee that he is very concerned about the situation. On 6 March he put his concerns in writing to the shadow Secretary of State for Defence, my hon. Friend the Member for Llanelli (Nia Griffith). He said:

“Both GKN’s existing Board and Melrose have publicly indicated their intentions to restructure, and potentially sell, some elements of the business. I recognise that this will be unsettling for staff who might be affected but the impact of either of these proposals on defence and aerospace jobs is currently unclear.”

It may be unclear to him, but it is not unclear to many others.

I urgently ask that the concerns are delved into in some detail and depth as then they will be apparent for all to see. I hope the Government will bite the bullet and necessarily intervene, to stop this hugely damaging takeover.