One of the United Kingdom's oldest engineering and aerospace firms is fighting a hostile takeover bid by an investment group known for its aggressive cost cutting, and the outcome could have implications for an Orangeburg County plant that makes parts for Boeing Co.
London-based Melrose Industries is pursuing a $10.4 billion offer to acquire GKN, including the company's financially troubled North American aerospace arm that operates a business in Orangeburg employing more than 300 workers.
The Midlands campus, representing a $58 million investment by GKN since 2011, makes lip skins — the leading edge of an engine nacelle — for Boeing's 777X and 737 MAX commercial airplanes. It also makes floor grids for the 787 Dreamliner that's assembled at Boeing's North Charleston campus.
Redditch, England-based GKN wants shareholders to reject the takeover deal, saying Melrose's history of gutting acquisitions and then reselling them for a profit would cause long-term harm to the global firm.
The takeover bid has drawn scrutiny on both sides of the Atlantic because of GKN's ties to defense industries in the U.K. and the United States.
U.S. Rep. Neil Dunn, a Republican from Florida, told the Committee on Foreign Investment in the United States that Melrose's lack of any background in defense contracting makes it an unfit owner of GKN, which supplies parts for F-35 and F-18 fighter jets and Chinook and Black Hawk helicopters.
"In addition to concerns over who may ultimately acquire GKN, Melrose's business strategy will undermine long-term investments in research and development and secure supply chains, which are critical to the major defense platforms GKN currently supplies," Dunn wrote in a letter of the committee, which reviews the national security implications of foreign investments in U.S. operations.
British Prime Minister Theresa May is under increasing pressure to block the takeover, according to a report in London's Daily Mail newspaper.
GKN spokesman Wes Bates said he can't comment on specific effects the takeover bid might have on operations in Orangeburg.
"At this time, due to restrictions regulating the process of the Melrose bid, we are unable to comment further than our latest statements and documents," Bates said, referring to a turn-around plan the company recently published.
Melrose has not said what its plans would be for specific sites it might acquire, but it has objected to GKN's characterization of the firm as a vulture capitalist. In a letter to GKN shareholders, Melrose chairman Christopher Miller said his company would not cut corners in its investments, according to a Bloomberg report.
Miller said the company also would not hastily split GKN's aerospace and automotive divisions — something GKN's new management team has proposed as a way to boost value by giving shareholders two "pure play" companies rather than one hybrid.
GKN's North American aerospace division has been in financial free-fall in recent months. The company said late last year that it will write down up to $182 million of inventory and unpaid bills at its North American plants. That followed an earlier $21 million inventory charge at an Alabama site that supplies French planemaker Airbus.
Kevin Cummings, the former president of GKN's North American aerospace division, was to take over the company's global CEO role on Jan. 1 but was instead ousted from the company when its shares tumbled on news of the North American woes. Shares have recovered since Melrose went public with its takeover bid, closing Monday at $5.83 on the London Stock Exchange.
In a turn-around program called Project Boost, GKN said it plans to generate an additional $476 million in revenues by 2020 through reducing layers of management, selling non-core businesses, consolidating warehouses and other measures. The company said it also expects "significant tailwind" from recent U.S. tax reform that cut the federal corporate tax rate to 21 percent.
"We have a strategy and we have a plan to deliver world-class value back to our shareholders," Ann Stevens, the company's interim CEO, said in an interview posted on GKN's website.
Analysts aren't so sure. Deutsche Bank said in a report last week that GKN's nascent management team might not be able to unlock the company's full potential when compared to the more proven Melrose group.
"The overriding question remains who is best placed to deliver it, the incumbent and as yet unproven GKN management team or Melrose, who have a much more compelling track record of delivering shareholder value since their first acquistion in 2005," the report states.
Once known as Guest Keen and Nettlefold, GKN was founded in 1759 as an ironworks company that supplied cannonballs to the British army during the Napoleonic wars. It's part of the FTSE 100 index of companies traded on the London exchange with the highest market capitalization.