GKN’s Courage

Post #13: Claire pays tribute to a great British company

I wish I wasn’t writing this. If 2.4% had gone the other way, I’d be writing something very different. Well, not wholly different, but we’d be breathing a sigh of relief and celebrating GKN’s narrow escape, rather than picking over the bones of Melrose’s win last Thursday, when 52.4% of shareholders voted to accept their takeover bid.

If you’ve been following the story since Melrose launched its hostile bid in early January, you’ll see that GKN went from ‘not a chance in hell’ to a very real likelihood of winning. It’s almost unheard of that a shareholder vote goes down to the wire – hostile takeovers like this are almost always a shoo-in for the bidder – and it’s a testament to the GKN team that, against all expectations, and in the face of a pretty hostile press, they nearly saved the company.

I have to declare an interest here – GKN has been a great client of Falcon Windsor for a number of years, and we worked on the defence as well as our usual annual report project. So on a personal level we’re gutted that our team lost – as we would have been, whatever the merits of the situation.

But personal feelings aside, I genuinely believe that said merits were not – or should not have been – with Melrose. And it seems that most shareholders who were interested in the long-term future of GKN believe that too. At the time of the vote, “reports suggest some 20-30% of GKN shares were controlled by hedge funds seeking to profit from the arbitrage opportunity: betting on Melrose winning, by buying shares in GKN and short selling shares in Melrose” (FT, 29 March). Assuming this is true, then only 20-30% of longer-term shareholders must have been in favour of the Melrose bid, since it was won by just 2.4%.

My concern, therefore, is this: how is it right that the future of a 259-year-old company – and all whose livelihoods depend on it – can be determined by a few people who bought up shares in the last couple of months in order to make a killing?

I’ve been working in corporate reporting for 17 years now, and even back then there was concern over a system which encouraged short-term incentives for investors at the expense of the long-term health of companies and society more widely. Regulators have been looking at how to encourage a longer-term investment view, and many of the changes in corporate reporting we’ve seen since then – including the latest requirements to report more fully on non-financial indicators – have that goal in mind. But, while such changes have resulted in longer and less readable reports, have they really achieved anything meaningful towards that goal?

The loss of GKN last week to UK plc would suggest not. However, the fact that the margin was so very narrow is perhaps something to be optimistic about. There will always be people who care about nothing but cash for themselves now. That there are clearly many others who are prepared to stick it out for the long term, for the benefit of the many, is encouraging. The narrowness of this vote was of course largely to do with the robustness of the GKN team’s defence, but I hope that it also reflects a growing longer-term approach by the investment community.

I called this blog GKN’s Courage as a tribute and a thank you to the GKN team. I must confess, though, that it’s not my title. On the day of the vote, everyone involved in the defence was invited to a thank-you lunch. As we were waiting for the result, Group Finance Director Jos Sclater gave a brilliant speech likening the defence to a horse race in which rank outsider GKN’s Courage was pitted against firm favourite Melrose Boy, only to confound expectations and arrive neck-and-neck at the finish line. It was funny and moving, as well as honest, but more than anything else it showed how much the whole GKN team really cared about the long-term future of the company they worked for. I must add that, in my opinion, had the race been a fair one, GKN’s Courage would have won by at least a length, if not 10.

In their bid, GKN’s new owners also promised a long-term concern – let’s hope they live up to it.

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2 comments on “GKN’s Courage

  1. Andy Milligan on

    Claire, a poignant and pertinent blog. You raise a serious issue about the future of capitalism. If you have ever watched the film Other People’s Money, you’ll know that this is an issue which has been going on for years. I think people’s acceptance of short-term profiteering at the expense of longer term profit-making is changing. Also, I think there is a growing concern about the possible manipulation of votes for the benefit of a few shareholders against the stewardship of a company with benefits for many stakeholders. As you said, let’s hope that GKN is ultimately being sold on, not sold out. A timely reminder for people to read Established, the book to which you have contributed an outstanding chapter!. Andy

  2. Tamara O'Brien on

    Excellent piece Claire. I know how much this meant to you personally, and you would have put heart, mind and wordpower into every communication. Some unquantifiable portion of that 2.4% is surely down to effective copywriting.


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