Seven Reasons a Melrose Takeover of GKN Is Likely to Pass Muster
(Bloomberg) -- Melrose Industries Plc faces a final hurdle in its hostile takeover of defense contractor GKN Plc -- getting the nod from the U.K. government. Seven past precedents suggest it will.
If Defence Secretary Gavin Williamson determines that the deal poses a threat to national security, it falls to Business Secretary Greg Clark to refer it to the Competition and Markets Authority. The process involves a public-interest intervention notice compelling the CMA to produce a preliminary assessment.
Every time a notice has been issued on national security grounds, the deals have been allowed to proceed following a preliminary probe. In those seven cases, the buyer was foreign and gave the government guarantees on how it would operate -- something Melrose has already done. It’s also likely to benefit Melrose that the company is based in England.
Below are snapshots of the previous deals:
Hytera’s acquisition of Sepura (2017)
The only time that Clark -- or indeed any Conservative minister -- has used such powers was over last year’s 74 million-pound ($104 million) takeover of digital radio developer Sepura Plc by China’s Hytera Communications Corp. The deal was allowed to go ahead after Hytera said it would continue to provide repair services to the Airwave radio system used by U.K. emergency services for as long as it’s operational.
Atlas Elektronik buys QinetiQ unit (2009)
German electronics company Atlas Elektronik GmbH’s 24 million pound-bid for Qinetiq Group’s Underwater Systems Winfrith unit was referred to the Office of Fair Trading (a predecessor to the CMA) for a preliminary probe because the business provided systems for British submarines and warships. The deal proceeded after Atlas -- owned by Thyssenkrupp AG -- agreed to government conditions including keeping British directors, U.K. incorporation for units working on British military programs and ensuring staff have appropriate security clearance.
GE bid for Smiths Aerospace Unit (2007)
U.S. industrial giant General Electric Co. agreed in early 2007 to buy Smiths Group Plc’s aerospace unit for $4.8 billion. The transaction attracted an intervention notice because of what the Office of Fair Trading described as the unit’s “critically important capabilities within the U.K. in the areas of combat, weapon and communications system integration.” The deal proceeded a few months later after GE undertook security guarantees, including a provision that only U.K. incorporated units would service British military contracts and a pledge to advise the Ministry of Defence at least six months before any planned disposals of defense-related assets.
Finmeccanica bids for BAE unit (2005)
Italy’s Finmeccanica SpA (Now Leonardo SpA), agreed in early 2005 to buy U.K. defense contractor BAE Systems Plc’s communications unit for 25 million pounds, with the two companies also forming a joint venture in avionics that cost the Italian suitor 379 million pounds for a 75 percent stake. The deal went ahead after it accepted undertakings concerning U.K. incorporation of the business, the retention of British security-cleared management and guaranteed supply of goods and services for military programs.
Lockheed Martin buys Insys (2005)
The Office of Fair Trading concluded in a preliminary assessment that the proposed acquisition of Insys Group Ltd., a defense engineering company, by U.S. defense giant Lockheed Martin Corp didn’t merit further examination. The government accepted undertakings by Lockheed including that so long as the acquired unit worked on military programs, enough directors would be U.K.-security cleared.
Finmeccanica buys remaining stake in AugustaWestland (2004)
GKN’s first experience of a public interest intervention came in 2004 when it agreed to a 1.1-billion-pound sale of its 50 percent share in helicopter maker AgustaWestland NV to Finmeccanica, which already owned the other half. Finmeccanica agreed to keep British directors with U.K. security clearance, protect classified information and ensure continued supply of goods and services to the British military.
General Dynamics’s Bid for Alvis Plc (2004)
When U.S. defense company General Dynamics Corp. bid unsuccessfully to buy British tank-maker Alvis Plc, the government of former Prime Minister Tony Blair sought a probe by the Office of Fair Trading using an intervention notice under European laws. While GD agreed to government terms including maintaining U.K. incorporation for units contracting to British military programs, it was ultimately outbid by BAE Systems, which bought Alvis for 355 million pounds.
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