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House of Commons Hansard
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GKN: Proposed Takeover by Melrose
27 March 2018
Volume 638

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With permission, Mr Speaker, I will make a statement about the current takeover bid by Melrose plc for GKN plc.

Following the announcement of the bid, I spoke to the chief executives of GKN and Melrose to understand their plans, and I have done so again as the bid timetable draws to a close and changes have been made to the original terms. My quasi-judicial role requires me to treat all parties fairly and so I should disclose that I have also had a briefing with the chief executive of Dana Incorporated, which has been proposed as a partner in a transaction with GKN.

As hon. Members know, the long-standing British manufacturing and engineering company GKN is subject to a current takeover bid from the British company Melrose plc. One of the most important features of the British economy is that we have a vigorous market for corporate control. Business are kept competitive and efficient by the possibility of the current management being replaced by another set of managers if, in the view of their shareholders, they are underperforming and the company could be better run. However, uncomfortable that constant threat may be for incumbent managements, it is an important one, and acts against complacency and inefficiency, and so is in the interests of employees, customers, suppliers and taxpayers as well as shareholders. It is worth reminding ourselves that shareholders include the pension funds on which millions of working men and women rely for a comfortable retirement.

There are strict and limited grounds for ministerial intervention in proposed mergers. The limited exceptions apply where one or more of the three public interest grounds are engaged. These are those of national security, media plurality and financial stability. The Enterprise Act 2002 gave powers focusing narrowly on those grounds to refer a bid to the Competition and Markets Authority. Such a reference is possible until four months after the completion of a transaction.

I will make such an assessment following receipt of advice from the Ministry of Defence and other agencies on the final terms of a bid, if it is successful, and I will inform the House immediately if an intervention is launched.

However, beyond that formal statutory role, I am concerned to ensure that significant takeover bids shall not act against the interests of our economy, employees, or the broader set of stakeholders. It has long been recognised that companies and their directors have duties that extend beyond current shareholders alone. Indeed, section 172 of the Companies Act 2006 sets out a requirement for directors to have regard to, among other things, the interests of the company’s employees; its business relationships with suppliers, customers and others; and the impact on the community and the environment. In my view, this establishes the principle that we expect interests broader than pure shareholder value to be taken into account by directors, and also in the attitude of the Government.

In the past, some takeovers have had consequences for these groups that were not only deleterious but were at odds with the indications given during takeover bids. For this reason, a new regime was established whereby bidding companies can make legally binding commitments as to their intended conduct in the event of the bid succeeding. Having established this regime, I believe it should be used in takeover bids where the interest of stakeholders is engaged, as is clearly the case here. GKN is a valued employer, directly and through its supply chain, and it plays an important role in Britain’s automotive and aerospace sectors. Through its research and development, it has a vital role to play in our industrial strategy. It benefits from Government-sponsored contracts and participates in sectors that enjoy active engagement from Government-sponsored R&D programmes. It also carries responsibility for a large number of pensions that depend on GKN’s prosperity to fund the pension scheme, which is currently in deficit.

Melrose’s business model is based on acquiring, improving and selling businesses to new owners after a small number of years. While this approach can have advantages in terms of efficiencies, tensions can arise between it and the need for long-term investment and stability for important relationships. With the deadline for the offer period closing on Thursday, and without prejudice to my use of Enterprise Act powers—which, as I said, operate according to a longer timetable—I believe that Melrose should set out more clearly its intentions towards wider stakeholders and, specifically, make commitments concerning them in a legally binding form before the opportunity is lost with the closure of the offer period.

Accordingly, I wrote to Melrose yesterday asking it to set out clearly its proposed commitments, including on maintaining the business headquartered and listed in the UK; maintaining a UK workforce and respecting their employment rights, as well as engaging closely with their representatives; continuing to pay tax as a UK taxpayer; continuing to invest in R&D programmes that are crucial to our industrial strategy; investing in the training and development of the workforce, including in apprenticeships; treating suppliers well, including the prompt payment of suppliers; and making arrangements for current and future pensioners that are to the satisfaction both of the trustees and the independent Pensions Regulator.

In addition, stable ownership and financing is an important part of the underpinning of trusted relationships that particularly characterise the defence sector. That stability is also important for research and development partnerships, which, by their nature, endure over many years, whereas Melrose’s model has been built on short-term ownership. I have therefore sought a legally binding commitment from Melrose to greater continuity of ownership specific to the defence-related businesses and to excluding the option of a short-term sale of this business without the prior consent of the Government. I have also made it clear that in the event of a successful bid, the Ministry of Defence would look to require a legally binding commitment relating to the management of any defence contracts. It is important to emphasise that these would be voluntary commitments by the company, over and above questions of the use of Enterprise Act powers. But I do think it is right that these wider issues of public concern should be addressed by Melrose before the bid closes formally. Melrose has earlier today given a response to my letter that I will place in the Libraries of both Houses, alongside my letter.

Subject to the powers that I have described, it is for shareholders of GKN to decide which management team they wish to run their company. But my strong belief is that where broader interests are at stake, and having established a new regime in which legally binding commitments about the future can be given, they should be used before the opportunity to do so expires. I will continue to keep the House up to date at every phase of these proceedings. The House can be assured that I will carry out my responsibilities seriously, meticulously and fairly in representing the public interest in the future of such an important company. I commend this statement to the House.

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I thank the Secretary of State for today’s update. Sadly, however, the letter sent by the Government yesterday and the response by Melrose offer very little certainty and raise even more questions.

First, it was on 8 January 2018 that the board of GKN received a preliminary and unsolicited proposal from Melrose to acquire the entire share capital of GKN. Melrose put in its formal offer on 1 February. Concerns about Melrose’s plans had been raised by trade unions, Members of this House and the media for months, yet it took until 26 March for the Government to write to get some assurances from Melrose. So why did the Secretary of State wait until the last minute?

My second question concerns the enforceability of the assurances themselves. Which of the assurances and commitments given by Melrose in its letter of 27 March are actually legally enforceable and binding, because on my reading of the letter, it seems that very few are? Specifically, can the Government confirm that the commitments given under the heading, “Takeover Panel enforceable undertakings”, are indeed enforceable and will be enforced by the takeover panel? Can the Government also confirm that all the commitments below the paragraph headed, “Long-term commitment”, are totally unenforceable? What powers do the Government have to enforce any of the empty promises from page 2 onwards that are not post-offer undertakings? My discussions with the takeover panel suggest that enforceability is indeed limited to the areas referred to in Melrose’s letter under the heading, “Takeover Panel enforceable undertakings”. I must also express concern regarding the “flexibility” that Melrose requests in relation to any offers it receives to sell the aerospace division prior to 2023. What will the Government do to protect this business and, indeed, the other elements of the business that are not even referred to in Melrose’s letter? Do we take their omission as a clear indication that they will not be protected?

My third question is about the substantive content of the assurances. Why did the Government not ask for or receive any post-offer undertakings on maintaining or increasing employment at GKN over a 10-year period? These can clearly constitute post-offer undertakings under takeover code. Indeed, when SoftBank took over Arm Holdings, it promised to increase the total number of UK Arm group employees to at least double the total number as at the takeover date. It is also not clear why Melrose did not include UK tax residency as a post-offer undertaking. Similarly, I would argue that many of the things that the Government asked for were weak and meaningless. For example, when the Government asked for the maintenance of a UK workforce, what did they actually mean? Is one employee in the UK enough to fulfil this condition? Similarly, on investing in the training and development of the workforce, how much, and by what time?

My fourth question concerns the Secretary of State’s powers under the Enterprise Act 2002 to block the bid on national security grounds. It would be helpful if he confirmed that Melrose has indeed waived the condition to get the approval of the Committee on Foreign Investment in the United States. More importantly, the Secretary of State still has the powers to block this on grounds of UK national security, so will he confirm unequivocally today whether he will do this?

Finally, there are reports that merger arbitrage funds are planning to accept the Melrose offer, but as they are holding derivatives of GKN shares, they will not pay stamp duty on the transaction. Will the Secretary of State undertake that if Melrose does indeed proceed with this offer, the Government will investigate all share dealings to ensure that the correct stamp duty has been paid?

If the Government think that today’s weak, late and unenforceable assurances from Melrose are sufficient, then they are deeply mistaken. There is nothing to assure workers, nor to put bed concerns about our industrial strategy and national security. As my hon. Friend the Member for Birmingham, Erdington (Jack Dromey) so eloquently stated recently, GKN is a jewel in Britain’s industrial crown that employed generation after generation. It needed a Government prepared to fight for its future, and I am afraid that the response so far has been far less than adequate.

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Everyone in this House, on both sides of the Chamber, agrees that GKN is a very important company that is crucial to vital R&D work and employs thousands of people across the country. That is why I consider it important, over and above my statutory powers—I have explained very clearly that this is without prejudice to the use of those powers—to encourage the bidder to set out much more clearly than it has done so far its intentions on many of the matters that the hon. Lady mentioned, such as research and development, being based in the UK, and a commitment to the length of tenure of this very important aerospace business. That seems to be an appropriate action at this stage in the proceedings.

Of course, this is a contrast to the sorry situation that arose—there are Members in this Chamber who will remember this—during the time in which the hon. Lady’s party was in government, when Cadbury was sold to Kraft and a plant that was expected to be kept open was closed forever. In response to that, when we came into government a regime was established that allowed legally binding undertakings to be given. I have said repeatedly in this House and to hon. Members that, given that that regime exists, I expect it to be used. I was not satisfied with the degree of commitments that had been given so far by Melrose, so I think that it was the right step, over and above my statutory powers, to set out those concerns in writing and to invite Melrose to respond to them.

The hon. Lady knows very well the statutory powers that I have. Again, they were passed when her party was in government, under the Enterprise Act 2002. The question of national security is a quasi-judicial one that will be addressed separately. It is not a subjective decision that I can take. It has to be based on a clear assessment. I make the commitment that I will take that assessment meticulously. There is a closing window for this bid, and it is right to use that window to obtain statements as to Melrose’s intentions.

The hon. Lady asked questions about the enforceability of the commitments. Melrose has said in its response that it is in discussion with the takeover panel. I regard that as the best way to lodge the commitments, so that they are enforceable with severe penalties, including contempt of court, if they are broken. The takeover panel monitors the adherence to the commitments after the event, were the bid to be successful. On security, the hon. Lady also asked about the company’s conversations with the US Administration. It is the case that the company took a decision to waive that condition.

The hon. Lady asked a question about commitment to the workforce. I have met the trade unions twice now. I specified in my letter to Melrose that I expected it to make a commitment to deal fairly with the trade unions in order to ensure that the future of the workforce is taken seriously, in lockstep with the trade unions. That is important. She also made a point about the avoidance of stamp duty. Clearly, any taxes that fall due ought to be paid.

I hope that the hon. Lady and the House—whatever their assessment of the bid—would, in recognition of the powers available, think that it is the right step to approach the bidder at this stage, before the timetable closes, in order to set out in a way that can be enforced for years to come, undertakings against which it can be held to account. That is the basis of my letter to the company.

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I thank the Secretary of State for his statement. Like many colleagues, I have a constituency interest in the matter. As he knows, because he has been kind enough to meet me, the global headquarters of GKN is in Redditch. Some 260 people, many of whom are my constituents, have been told that their jobs will go if this takeover goes ahead. I welcome the commitment that he has been given by Melrose to maintain the UK headquarters for a five-year period. What does he understand that this would mean for my constituents in Redditch?

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It is important that we recognise the benefits and valued presence of GKN in many parts of the country. It is a pivotal UK engineering firm, with a long heritage. The commitment that I obtained from Melrose was for that to continue, and that is what it has set out, but it is for shareholders to judge the decisions that the future management may make.

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I thank the Secretary of State for advance sight of his statement. He is right to seek undertakings at this stage, because the concerns are many and varied, including: taxpayers’ money being used in GKN’s programmes; defence contract concerns; and the location of GKN’s headquarters. Another concern is security of employment, as Melrose is not known for its hesitation in stripping out what it sees as unimportant to its aims. There are concerns about training, research and development, and the long-term security of sensitive intellectual property, and there are written concerns from the Pensions Regulator that the pensions of employees could be seriously weakened by the proposed takeover.

I understand from the Secretary of State’s statement that he will place Melrose’s response in the Library, but will he give the answers to my questions in the House today? Is he confident that the Melrose line of, “Buy, improve, sell” is not in actual fact likely to be, “Buy, strip and sell what is left”? What detail will he require to be satisfied of this, or is it, in Melrose’s words, to be done “in good faith”? If the Secretary of State for Defence is to receive assurance for his “serious concerns”, will he come to the House to confirm that he is happy with the answers given? Will the Secretary of State outline the mechanism by which Melrose will guarantee that jobs will not be shipped abroad, and that the pensions of GKN workers will be fully funded? Finally, will he assure the House that he will intervene if any of the questions asked about the many concerns that are left remain unanswered?

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I have set out in terms in my letter to Melrose and in my statement that, in many respects, the model of short-term ownership—especially for assets connected with defence purposes, in which long-term relationships are important—is in tension with the model of these industries. That is why I set that out, outside the statutory determination that I have to make. I suggested that the commitments that Melrose makes are legally binding. The takeover panel provides one mechanism for that, which I commend, but there are other ways in which the undertakings could be made legally binding.

The hon. Gentleman asked about the assessment of the Ministry of Defence. At the close of the bid—when all of the facts are known, including what has been said this morning—the Ministry of Defence and other agencies will make an assessment and advise me on whether there are grounds for an intervention in the interests of national security. I have made a commitment to this House that I will take that expert advice seriously and meticulously, and will make a decision when I have it before me.

On pensions, Melrose and GKN have been in discussion with the pension trustees and with the Pensions Regulator. It is for the Pensions Regulator to determine whether the arrangements are satisfactory for the interests of not just current, but future pensions.

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Many of my constituents have bitter memories of the promise made to keep open the Somerdale factory site in Keynsham when Kraft took over Cadbury, under the previous Labour Government. That factory site is now closed and is a housing estate. What commitment can the Secretary of State give to my constituents that this will be different, and that these legally binding commitments will be properly enforced this time?

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My hon. Friend makes an excellent point. I have visited the site he mentions. That situation was a breach of the indications given during the bid, which is why this regime of legally binding commitments was introduced. It is my view that such a regime exists not simply to be available in principle, but to be used in practice. The force of the law applies to adherence to those commitments in a way that sadly was not the case with Kraft and Cadbury.

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May I ask the Secretary of State why it took until three days before shareholders had to vote on this bid for you to write to Melrose to get some assurances, which are frankly pretty limited? It is too late in the day now for you try to drive a harder bargain—not you, Mr Speaker; you would drive a very hard bargain. The Secretary of State says it is still possible to call this in, but the takeover has been hanging over GKN and its employees and wider stakeholders for more than two and a half months now. What more information do you need to gather to decide whether to call this in? When will the Secretary of State finally make a decision on whether or not to call this in? It is too late now, isn’t it?

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Order. Before the Secretary of State replies, I say this with great courtesy to the Chair of the Select Committee. It was in fact raised at the morning briefing meeting which I chair, accompanied by the Deputy Speakers and senior procedural advisers, that there has been an unhealthy tendency recently for Members to start using the word “you”. In case people observing our proceedings wonder what the fuss is about, “you” refers to the Chair, and debate must be conducted, as ordinarily the hon. Lady would do, through the Chair, and Members are referred to in the third person. There is good reason for that: it preserves the basic civility of our exchanges. I accept that it was accidental—the hon. Lady, in her passion, got carried away—but we must now return to good order, exemplified, I am sure, by the characteristic courtesy of the Secretary of State.

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I would say to the Chair of the Select Committee on the point about the statutory grounds that it requires an assessment when all facts are known of the implications for national security. That will come to me, and I will make a decision on that basis once the bid has closed. I observed her Committee’s scrutiny of the bid and of GKN itself. She asked for commitments to be given beyond what is statutorily required. I think she was right to do so. She was not satisfied with the response to that. I would have thought she would welcome the opportunity of my using my influence at this stage, before the bid closes, to push the company further to state clearly in the public domain, so that people can make a decision, very important matters concerned with the length of ownership and the investment in research and development that go beyond the commitments made to her Committee. I think it is welcome that they are in the public domain. It is now for shareholders to decide, and I will make a decision on my statutory powers when I am in receipt of the assessment from the security authorities.

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I welcome my right hon. Friend’s statement and congratulate him on it. I know that he and his Department have done lots of work over recent times on this very important issue. That will provide some comfort to thousands of GKN workers in my constituency, but obviously there is still a process to go through and an end to reach. Does he agree that it is vital that we continue to protect our sovereign defence manufacturing capability, not only on the grounds of national security and our ability to produce platforms and equipment to defend ourselves, but post-Brexit, in terms of exports, global Britain and all that?

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I completely agree with my hon. Friend. This has been a successful business, and whether we are talking about the defence industries or the aerospace sector, these are areas of British strength in which we expect and want to see improved export performance around the world. For all the reasons that he describes, it seems important, before the opportunity is taken away through the closing of the bid, notwithstanding the fact that these are voluntary undertakings, to press the company to make clear its intentions.

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I led the battle against the Kraft takeover of Cadbury. That was wrong then, as the Melrose takeover of GKN is wrong now. The commitments that have been given—less on research and development, no guarantee that it will all be done in this country, five years on aerospace in a sector that typically thinks 15 years ahead, and no guarantees on Driveline—are simply not good enough. Those are “guarantees” that do not go far enough. This cannot be the last word. I have two questions. First, will the Secretary of State be seeking further undertakings from Melrose? Secondly, can he confirm unambiguously that, if advised that there are defence and strategic grounds that merit it, he will intervene and block this hostile bid?

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Given the hon. Gentleman’s experience of Cadbury and Kraft, he will know that there was no possibility of taking any legally binding undertakings as to their future behaviour. We saw the consequences of that, as my hon. Friend the Member for Kingswood (Chris Skidmore) said. I have been very clear with the House that what has been extracted from the company by way of commitments is without prejudice to my statutory powers. Of course I will make the decision seriously, following expert advice from those concerned. In terms of commitments, the bidding company made certain statements in response to the Select Committee. It has made further statements in response to my letter. I dare say that the views of Members expressed today will be heard by both companies concerned and can be taken into account in the remaining days of the bid.

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I welcome the Secretary of State’s statement. The shareholders include many of my constituents, who are relying on pensions from GKN. Can he reassure me that any decision taken by his office will be in the interests of all the people who are relying on those pensions for a comfortable retirement?

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I have been very clear with the company and in my discussions with GKN that the welfare of current and future pensioners is extremely important. We have a Pensions Regulator, which has the ability to scrutinise and advise on these matters, and the trustees are independent of the company. As I said in my letter, the pensions arrangements should be to the satisfaction of both.

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One of the most pressing issues when there are major corporate changes in an employer is pension security, as the Secretary of State just outlined. Can he expand on what assurances have been given? Has he looked at the British Steel scheme, where members transferring to the Pension Protection Fund have been told that if there are processing delays by the Government, they may lose some of their pensions? Will he or another Minister meet me urgently, as the deadline on that issue is tomorrow?

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I would be very happy, either by myself or with a colleague, to meet the hon. Lady. For matters of pensions, including steel pensions, the Pensions Regulator is quite rightly there to operate independently of Government and of the companies, to ensure that fair decisions are taken. That is a good arrangement, but I am happy to arrange the meeting she asks for.

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I welcome the Secretary of State’s statement. In relation to the defence contract, is he aware of Melrose talking to the Ministry of Defence? What information will he seek from the Ministry of Defence in coming to a decision on a quasi-judicial basis in relation to whether there are national security concerns?

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I am grateful to my hon. Friend for his question. My understanding is that there have been discussions between the Ministry of Defence and Melrose. Should the bid be successful, the MOD and other agencies would then need to form a view as to any consequences it had for national security and advise me accordingly.

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I have a constituency interest: the GKN Innovation Centre lies in Abingdon. Under the 2002 Act, the Minister is able to test whether or not such takeovers are in the public interest, but only for very specific things. Does this not show us that we need to look again at the public interest test, so that it can look at things such as the industrial strategy and the UK’s capability to deliver R&D?

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R&D was one of the important matters that I specified in my letter about which it is in the public interest for commitments and assurances to be given. Commentary has been made on that, and the hon. Lady will want to study what has been said, in particular about Abingdon. The tests for public intervention are long standing, consistent and required by European law, and they relate to financial stability, media plurality and national security. For many years, they have limited the grounds for intervention, which is why it seems right and appropriate, where there are wider issues of concern, that I should use my ability to write to and press the company to be clear about its intentions.

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What manufacturing industry in the UK needs is long-term, patient investment, as exemplified by companies such as JCB, Rolls-Royce and Toyota—all in the west and east midlands. What we see in this case, however, is a company willing to come in for a few years, make short-term gains and pass back all that money to shareholders, with very little investment, which is not in the long-term interests of the UK economy. I accept that the Secretary of State is limited in what he can do now, but will he take another look at this whole issue and at where we can promote long-term, stable investment in manufacturing? That is precisely not the approach exemplified in this case.

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Such long-term commitments and partnerships are important, which is why they were among the concerns I raised with the bidding company, although it is obviously a matter for shareholders to decide. It is fair to observe that GKN has also proposed to make some changes to the ownership of its activities on the automotive side. My hon. Friend is absolutely right about our commitment to the very successful focus of our industrial society on the automotive and aerospace sectors, and I expect the owners of GKN—whether the existing management or an alternative—to maintain that very deep involvement in a very successful set of arrangements.

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The Melrose commitment not to sell the GKN aerospace division before 2023 falls well short of the investment cycles of 20 to 40 years needed in the aerospace industry. It also fails to meet the concerns expressed by companies such as Airbus about the security of the long-term availability of the products they need. Will the Secretary of State commit to take whatever action is necessary, including blocking the bid, to preserve this division?

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The hon. Gentleman, who formerly chaired the Select Committee, went through the experience of Cadbury and Kraft and knows there is no ability to extract commitments on these matters. I know from speaking to him about this that he thinks the use of the new powers is a step forward in that respect. When it comes to investment in the future, it is for shareholders to compare the approaches offered by the management. He knows very well the powers I have and the regime I operate under, but, as I have told the House, on the grounds that I can consider, I will look very carefully at the advice I am given on the question of national security.

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I welcome the statement from the Secretary of State and the undertaking he has secured from Melrose in the event of a successful bid. GKN has long been an important employer in Telford and many of my constituents are GKN pensioners, so does my right hon. Friend feel comfortable with Melrose making special dividend sweeteners to shareholders of over £1 billion while making only a small contribution to the pensions deficit?

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It is paramount that the interests of pensioners should be secured. I have said very clearly that I expect the Pensions Regulator and the trustees to be satisfied in relation to both camps—GKN or Melrose—that pensioners’ interests are being considered and protected, and that must of course come before the pay of executives.

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Has the Secretary of State received a commitment from this particular company, which is well known for short-term investments, on longer-term investments? In the defence industry and in manufacturing in general, everybody—and I have worked in the defence industry—knows that any project runs beyond five or possibly 10 years, so such a commitment is needed to guarantee employment in this area. Has he been given any such commitments?

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I agree with the hon. Gentleman, who knows the industry well and with whom I have discussed this matter. That is why I consider it important to request and advise the company to be clear about its commitment to research and development. In its reply to me, it has made some statements about that, which he and others can evaluate, along with some specific commitments about the level and nature of R&D. His description of the need for such a commitment to research and development is absolutely right.

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Most of the undertakings that Melrose has given in answer to the questions that the Secretary of State put to it will expire after five years. As the Secretary of State has already heard, lead-in times for the aerospace and defence industries can be five, 10, 15 or 20 years, and Airbus has said that Melrose’s business model may threaten its ability to continue to be a customer of GKN. Does the Secretary of State consider the undertakings given by Melrose to be satisfactory or sufficient answers to the questions he has asked?

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It is not for me to evaluate the competing bids, given that I may have a quasi-judicial role in determining whether to intervene. However, I thought it was right to set out the areas on which I would invite the bidder to state its intentions so that those intentions are clear not only to shareholders but to this House, including the hon. Gentleman, and members of the public, and they can make their own assessment.

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I have constituents who work at the GKN plant in Luton, and I recently met trade union representatives who are understandably concerned about the future. Older Members in the Chamber, of whom I am one, will remember that hostile takeovers, merger mania and short-termism were core factors in the devastating era of asset stripping and deindustrialisation that led to the disappearance of vast tracts of British manufacturing and to our current yawning trade deficit. The Government are paying at least lip service to an industrial strategy, so will the Secretary of State now make that strategy real by stepping in to save one of our most historic and valuable manufacturing companies by simply stopping this takeover?

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The hon. Gentleman is aware of the regime under which we operate. I hope that he agrees that it is right, before the shareholders make their final decision, to encourage the company to set out more clearly than it has done its future intentions not only so that that information is known, but so that, where it makes commitments, were it to succeed, it can be held legally to account for those.

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The Secretary of State specifically referred in his statement to the importance of the defence sector. However, the reply from Melrose to him, which I have looked at, states in one short sentence that it

“will execute a deed of undertaking in favour of the Ministry of Defence”.

One legal point of view is that that is a weak legal basis to base that on. Will he or the Secretary of State for Defence come to the Chamber at an appropriate time to give their response to that letter and indicate whether they intend to take action under the Enterprise Act 2002?

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When I receive the appropriate advice and make a decision as to whether an intervention is required, I will of course inform the House.

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I thank the Secretary of State for his statement. He rightly raises the importance of GKN to our defence sector. In his statement, he said that

“in the event of a successful bid, the Ministry of Defence would look to require a legally binding commitment relating to the management of any defence contracts.”

What assurances has he had from Melrose about the protection of GKN’s intellectual property and classified contracts, particularly in relation to their sale to countries that we see as a security threat? Not only would that be a threat to UK security, but it would hinder our future co-operation with our “Five Eyes” partners in developing new technologies.

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These are all precisely the issues on which Melrose are required to reach agreement with the Ministry of Defence, for all the reasons that the hon. Gentleman states.

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The Secretary of State perhaps has a somewhat nostalgic view of what shareholders might do in the interests of this company. From the litany of disastrous takeovers in years gone by, it is clear that shareholders often do not act in the best long-term operational and industrial interests of British industry, and we need to challenge that in this House in redefining company law. Given that Melrose’s practices are at odds with the ambition of GKN, will the Secretary of State consider whether the five-year time limit is long enough? Does he agree that we should consider reforming company law to ensure that shareholders genuinely act in the long-term industrial interests of British industry?

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I hope the hon. Gentleman will reflect that this is the first time a set of concerns outside a Secretary of State’s statutory powers has been laid before a bidding company, with the ability to discharge them through legally binding undertakings. I was very clear that section 172 of the Companies Act embodies a range of commitments that go beyond those just to shareholders. I hope the hon. Gentleman would agree that, by taking the action I have, I have reflected the wider concerns that exist.

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Many of my constituents in north Bristol rely on work with GKN and its largest supplier Airbus, including for the A400 military aircraft carrier. Both the Secretary of State and Airbus have said that a short-term approach to ownership is not compatible with the long-term interests of the defence sector, so if the Secretary of State will not intervene in this hostile takeover, will he seek to extend the five-year period, which we have heard is not long enough? In doing so, will he speak with Airbus about what the appropriate length of time should be?

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The decision in terms of the implications for national security has to be taken under advice. I think I have been clear to all Members that that is not a subjective decision. It has to be based on the formal advice that I take from the expert agencies involved. I set out in my letter to Melrose that I thought it was necessary for it to set out its intentions with regard to the period of ownership, specifically in relation to aerospace. Without that we would have been in the dark as to its intentions. It is helpful to know what that period is and for it to be legally enforceable. The suggestion is that only with the consent of the Government could it make any change before then.

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May I press the Secretary of State? The F-35, F-18, Chinook and Black Hawk helicopters are all defence contracts with which GKN is involved. What assurances did he seek from Melrose in relation to those contracts? I think all of us in this House are worried about the implications for defence, were the bid to be successful.

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The hon. Gentleman, who served as a distinguished Defence Minister, knows that these are squarely in the field of national security, for which there are statutory powers on which I will be advised by the Ministry of Defence and the agencies. What I have been discussing today are areas that are outside that statutory regime. There is still a very profound public interest that Melrose should set out its intentions. That is what it has done and that is now in the public domain.

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You, Mr Speaker, have a well-known prowess on the tennis court. If I had a fraction of those skills, I would have made it for the beginning of the statement, but I did at least beat the delivery of the statement, so I am immensely grateful to you for calling me.

The Secretary of State talks about the role of the Pensions Regulator. He does not know, I do not know and no pension trustees know on this deal which is the best longer-term buy to go for. Will he put forward and defend the strategic interests of pensioners by waiting for the Pensions Regulator to report to him on where the long-term interest lies, and block the deal if the strategic interests of pensioners are not met?

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I am grateful that the right hon. Gentleman made it for the statement. The role of pensioners is of course very important and it is why I set it out there. The Pensions Regulator, as I understand it, has been in discussion with the trustees, and it is for the Pensions Regulator to form her view. The right hon. Gentleman knows very well that media plurality, financial stability and national security are very specific grounds. They do not include, in terms of that statutory regime, the consideration of pensions, but I set out in my letter that I expect that the trustees and the Pensions Regulator should be satisfied that either proposal will operate in the interests of the pensioners.