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Pension scheme could need more cash if Melrose takeover succeeds, GKN warns

GKN said Melrose’s offer would saddle the business with a higher debt burden.


GKN Group headquarters (PA)

GKN Group headquarters (PA)

GKN Group headquarters (PA)

Engineering giant GKN has laid bare to investors the prospect of the firm having to pay more money into the company’s pension fund if Melrose’s £7.4 billion takeover tilt is successful.

The embattled firm has stressed that 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.

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 swoop 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 from the Daily Telegraph that the UK Government has ordered senior officials to assess whether the takeover is in the public interest.

GKN, which manufactures 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% 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, which employs about 58,200 staff and makes wing tips for Airbus, 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% in morning trading on the London Stock Exchange.