Debt burden warning in GKN takeover bid

The embattled firm, which has a major site in Shropshire, has said the turnaround specialist’s offer would saddle the business with a higher debt burden, which may have “implications” for the amount of money needed for the pension scheme.

The company has an operation in Telford that employs about 340 people. The factory on Hadley Park makes structural parts including wheels.

Employing 58,000 people across 30 countries in aerospace and automotive engineering, 258-year-old GKN stunned the market in October when it cut its profit outlook due to problems in the aerospace division.

Today’s revelations bring more concern about the future of the company, which is subject to a hostile takeover bid from Melrose, a firm that says it specialises in buying up and rejuvenating manufacturers. Pension trustees can demand more money is paid towards a company’s retirement scheme if they decide that the risk posed to future funding has increased.

Updating the stock market on the pension scheme, GKN said the group’s net leverage would be “materially higher” if the takeover went through. It added: “This may have implications for the covenant strength of the company, the level of the technical provisions deficit and therefore the level of immediate and/or long-term cash funding requirements.”

The latest twist in the takeover tussle follows a weekend report that the UK Government has ordered senior officials to assess whether the takeover is in the public interest.

GKN, which manufacturers aerospace and automotive parts, issued a blistering rebuttal shortly after Melrose’s last bid on January 18, claiming the US suitor had made “fake” claims and “misleading statements”.

The group said earlier this month that Melrose’s claim that the 430.1p-a-share price offered represented a 32 per cent increase on the price of GKN’s stock on the last business day before the approach was a “fake premium”.

Melrose has swooped on GKN after profit warnings in October and November following problems at its US aerospace division sent shares tumbling.

GKN also ditched its incoming boss in November less than two months before he was due to take the top job as it warned over another hit in its troubled US plant.

The Redditch-based firm has responded to the unwanted attention by vowing to separate its aerospace and automotive units and hiring a new chief executive.

Shares in GKN were down 0.3 per cent in morning trading yesterday on the London Stock Exchange.