Leopards do not change their spots so they say and the notion that the buy/do-up/sell company Melrose which four years ago succeeded in making an audacious hostile bid for Midland based engineering company GKN may now be about to ditch its past as a good old-fashioned industrial conglomerate in order to focus on the only significant part of the former FTSE100 company that it continues to own, GKN Aerospace, should send a chill down the spine.
Strangely it doesn’t, and while back in the 2018 hostile bid process I agreed that GKN management was far from being perfect, having fought hard but subsequently lost the battle to keep GKN independent, I have over time come to terms with the all but loss of another great British company name and its amazing history of continually re-inventing itself. Quite probably, whatever Melrose does from here on in regard of GKN is fine with me.
Mind you the thought, as someone suggested to me yesterday, that perhaps Melrose might even go as far as changing its name to GKN Aerospace as it attempts to ditch its past buy and then attempt to make more efficient before selling on to make a fast buck might, in ordinary circumstances, have been the final straw, but as Melrose has probably now opened itself up for a possible bid, I will best keep my powder dry on that one.
Having spun off the GKN Automotive assets into a new quoted entity called Dowlais, there can be little doubt that in respect of GKN Aerospace, within another year, Melrose should most likely be able to point to double digit margins and more importantly, given the outlook for the commercial aerospace industry, consistency and growth.
GKN Aerospace is a global business although the bulk of its manufacturing activities – 16 in total – are located primarily in the USA. The company also has facilities in 11 other countries in Asia, Asia Pacific, South America and in Europe, where its largest single manufacturing facility and engine centre of excellence is based in Trollhattan, Sweden. GKN Aerospace also has a facility at Papendrecht in the Netherlands and at Filton, near Bristol in the UK.
That the investment community has had severe doubts about Melrose £8bn hostile takeover of GKN four years ago is taken for granted but all credit to the management that it has continued to invest in GKN Aerospace. OK, so we had anticipated that when the promise to retain the GKN Aerospace division until 2024 which was made during the bid process had expired that we would soon be saying goodbye to GKN (formally Guest Keen Nettlefold) that would be it but it seems that having all but got rid of the automotive, powder metallurgy and Hydrogen parts of the business into Dowlais, all eyes would now be on who bought aerospace next year.
My guess is that while ultimately GKN Aerospace will most likely be sold by Melrose over the next couple of years there will be no hurry. Will Melrose be the last of the so-called conglomerates? Probably not although if it does have eyes on eventually increasing its activities in commercial aerospace it may well find that more difficult to achieve than buying GKN.
Whatever, as GKN Aerospace has, apart from Filton, little UK based manufacturing activity, I am not going to lose any sleep over what happens next. Over 40 years I have seen many large conglomerates come and the common denominator for failure is not understanding the business and being too greedy.
Yes, in my career I have observed some great takeovers and no more so than when Sir Owen Green’s BTR chose the absolute perfect moment to make a hostile bid for Dunlop in 1985. Equally, after Owen Green retired, I observed the stupid if successful hostile bid by his successors for Hawker Siddeley and how this ultimately brought BTR to its knees. And then there was Siebe – less said the better!
I also recall watching Greg Hutchings build a former Birmingham based button manufacturer F H Tomkins into the FTSE100 conglomerate and I also watched it all fall apart. And then there was Williams Holdings which eventually broke itself up. Others included C H Industrials and a little company called J W Wassall, a small conglomerate in the great scheme of things but one that was effectively created by David Roper and who, along with Christopher Miller and Simon Peckham, have been the brains behind Melrose.
Indeed, as a slightly humorous final remark, it was an analyst report written on J W Wassall by one of my colleagues when I was at Kitcat & Aitken, then part of Royal Bank of Canada in the late 1980’s that created one of the most unfortunate if funniest errors that I recall ever being made by an analyst when unfortunately, following an unspotted typo error, a sentence which should have said ‘JW Wassall also has a shopfitting company’ unfortunately for the analyst concerned became, ‘JW Wassall also has a shoplifting company’.
CHW (London – 11th May 2023)
Howard Wheeldon FRAeS
Wheeldon Strategic Advisory Ltd,
M: +44 7710 779785