GKN tried to end confusion about the scale of the deficit in its pension scheme yesterday, making a statement to the London Stock Exchange that sought to silence talk of a previously quoted figure above £1 billion.
It emerged later that Melrose, the group staging a £7.4 billion hostile takeover attack on GKN, had offered to make a £150 million injection into its target’s pension schemes.
Unrest over the pension issues surfaced last week when The Times revealed that shareholders were uncertain about the size of GKN’s liabilities after a private briefing to some investors by Jos Sclater, the FTSE 100 engineer’s new finance director. Mr Sclater said that GKN’s board believed that the deficit was £400 million, far lower than the £1.1 billion that had been indicated by the company’s pension trustees a week before.
GKN told the stock exchange yesterday that an up-to-date revision of the trustees’ calculations had brought the “actuarial deficit” on the schemes to £400 million. The actuarial deficit, GKN said, was the cash it pays into the schemes and was the “critical number”.
The move on GKN is the biggest hostile takeover in Britain in a decade. Melrose is an acquisitive £4.5 billion conglomerate whose motto is: “Buy. Improve. Sell.” Its formal offer document is due to be published shortly and liabilities surrounding GKN’s £4 billion staff retirement schemes are set to be a key battleground. Not only could the pension deficit deter Melrose or any other bidders, the issue is a complication in the planned demerger of GKN’s automotive and aerospace businesses.
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Melrose confirmed that it had offered to help to plug the deficit at a meeting with GKN directors when it made its initial approach. The offer was made in writing and has not been disclosed by the GKN board or the pension trustees.
A GKN spokesman would not comment on whether the company should have disclosed the offer to the Takeover Panel, the stock exchange or to its pensions trustees.
Pension trustees were put in the spotlight the day before Melrose went hostile with its takeover when the schemes’ chairmen, Rufus Ogilvie Smals and Michael Fairbrother, two former senior GKN directors, warned about the funds’ future in the event of “any change in the strategic direction or future ownership of the company”. That was criticised as “scaremongering” by some pension experts, while others said that the trustees appeared to be playing up the potential for the deficit to be a poison pill — something that makes the takeover of a company less palatable and is often used in defences against hostile bids.
In its statement yesterday, GKN said: “The company emphasises that the trustees are wholly independent and have a legal duty to take into account scheme members’ interests.”
A statement from the pension trustees said: “The trustee boards have acted neutrally and are solely focused on safeguarding members’ interests by ensuring that the schemes are properly funded. The trustees have indicated their wish to have constructive discussions with both sides.”