LONDON (Reuters) - GKN GKN.L gained an ally in its campaign to fend off a hostile takeover bid from Melrose (MRON.L) on Thursday when customer Airbus (AIR.PA) said it could not guarantee new work to an owner with a short-term perspective.
Turnaround specialist Melrose’s cash and share bid is currently worth around 7.8 billion pounds ($10.9 billion), an offer which GKN’s management opposes as being too low.
In an unusually robust intervention in a live takeover situation, European planemaker Airbus said it would find it “practically impossible” to give new work to GKN if it didn’t know who its long-term investor would be.
For Tom Williams, the chief operating officer of Airbus’s commercial aircraft unit, the main concern was over a long-term commitment to research and development.
“The industry does not lend itself to shorter term financial investment which naturally reduces R&D budgets and limits vital innovation,” he said in a statement emailed to Reuters.
“It would be practically impossible for us to give any new work to GKN under such an ownership model when we don’t know who will be the long-term investor.”
While planemakers cannot formally block consolidation among suppliers they do have significant leverage both through their purchasing power and also, on occasions, through change of clauses in existing contracts, according to industry sources.
Although such interventions are rare, Airbus and rival Boeing weighed in against a 2016 approach by Honeywell for United Technologies (UTX.N), one of the factors cited by UTC in rejecting the tie-up between suppliers.
Under GKN’s defense plan it will become focused on its aerospace operations.
It has lined up a $6.1 billion deal to merge its automotive business with U.S. company Dana Incorporated (DAN.N), pledged to return 2.5 billion pounds to investors from the Dana deal and from the planned sale its powder metallurgy business.
GKN seized on the Airbus comments, first reported in the Financial Times, to try to rally opposition to the bid.
“As we have previously stated, and as these comments from Airbus reinforce, winning new business in our markets would be more difficult if customers were uncertain as to the identity of their future long-term partners,” said GKN Chairman Mike Turner.
Melrose’s business model is typically to break up companies once it has improved their performance, but the group denied it had a short-term approach.
Melrose’s Chairman Christopher Miller said its approach was to “invest as if we were to own the business for ever”.
“Under Melrose, shareholders and customers will be able to enjoy a considered and longer term process of value creation, investment and business enhancement,” Miller said in an emailed statement.
A Melrose spokeswoman said the company would meet Airbus officials in two weeks’ time, dismissing a claim from two people close to Airbus that Melrose had canceled a meeting.
“We look forward to meeting them and explaining our credentials to run GKN in the better interests of customers than current management,” she said.
Melrose has already told British lawmakers that under its ownership GKN will maintain at least the levels of research and development investment made by GKN between 2014 and 2016.
The deadline for GKN shareholders to accept Melrose’s offer is March 29.
($1 = 0.7156 pounds)
Additional reporting by Tim Hepher and Paul Sandle; Editing by Jane Merriman/Keith Weir