Melrose rejects Corbyn's claims it is 'making a quick buck' from GKN

Melrose
Melrose reported a loss for the year

Melrose, the FTSE 250 industrial conglomerate attempting a £7.4bn hostile takeover of GKN, has rejected claims by Labour leader Jeremy Corbyn that it is an asset stripper out to "make a quick buck".

In prepared remarks at the EEF National Manufacturing Conference, Labour leader Jeremy Corbyn called Melrose "a company with a history of opportunistic asset-stripping" and accused it of mounting a "hostile, allegedly debt-fuelled takeover bid".

"A valuable company could be sacrificed so that a few can make a quick buck," he said. "We rightly praise the growth of companies like GKN and their location in the UK. And yet when we are facing the possible destruction of that company, we are powerless to act."

Mr Corbyn outlined Labour's plans to broaden the scope of the "public interest test", if it were to win power, which would allow Government to "intervene to prevent hostile takeovers which destroy our industrial base".

Melrose's model is based on acquiring companies, turning them around and selling them on.

In response to the comments, Simon Peckham, chief executive of Melrose, told The Daily Telegraph: "If you look at the track record, it's simply not true."

He said that since Melrose was set up in 2003, it had made about a $5bn (£3.6bn) profit for shareholders.

"We've made a lot of money for our shareholders, who are UK pension funds and UK insurance companies. And we've made a big contribution to the UK Treasury, a good contribution to the UK economy and we've bought overseas companies and actually made them better as part of that process."

GKN
Melrose insisted it was well placed to take control of FTSE 100-listed engineer GKN Credit: David Davies/PA

Melrose reaffirmed its commitment to the hostile takeover in its full-year results on Tuesday, as it announced that it had hiked its dividend, despite reporting a loss for the full year.

Christopher Miller, chairman of Melrose, said: “We are convinced that GKN would gain significantly from becoming part of an enlarged £10bn UK industrial powerhouse, benefitting from the proven Melrose operating model."

The turnaround specialist reported a £27.6m pre-tax loss for last year, narrowed from a £69.3m loss in 2016.

US ventilation and security systems producer Nortek – which it bought in July 2016 – weighed on performance, as the company incurred “significant restructuring costs”.

Brush, Melrose’s turbogenerator business, also suffered following a decline in its core gas turbine market, resulting in its balance sheet value falling to £300m. It is currently consulting with staff at Brush's plants in Loughborough, Leicestershire and Ridderkerk in Holland that could result in 270 members of the group's 720 UK workforce being laid off.

Stripping the impact of those Nortek and Brush issues out, the company made a pre-tax profit of £257.7m.

Despite these pressures, Melrose said it would increase its full-year dividend by 91pc to 4.2p per share.

The group’s revenue was £2.1bn last year, up from £889.3m the previous year, thanks to the Nortek acquisition.

Last week GKN’s board stepped up its war of words with Melrose, accusing the company of having a short-termist approach and lacking the experience to run a company of its size and complexity.

GKN previously said it believed that it would take Melrose longer than the standard offer timetable to secure approval from the US government panel that reviews takeovers with possible national security concerns – the Committee on Foreign Investment in the United States (CFIUS). GKN said it was willing to agree an extension in order to avoid shareholders rushing to approve a deal without knowing the implications the review.

Mr Peckham said that he was confident that Melrose would secure the CFIUS approval in time. 

Analysts at Peel Hunt said: "We do get a slight sense of Melrose being in the position where Nelson has asked Captain Hardy to ready the middle and lower gun decks for action.

"There is great momentum in Nortek and the corrective action at Brush is now underway, but of course it is about the bid."

Looking ahead for the year, Melrose said that, since the majority of its businesses are based in the US, it could see “adverse headwinds from exchange rate movements”, although “markets are currently sound”.

Melrose said it expected “further improvement in our businesses building on their second half sales performance” and that it had “confidence” for 2018 due to “exciting acquisition opportunities”.

Shares in Melrose closed up 0.9pc at 224.8p on Tuesday. 

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