15 February 2018

A recent letter written by Professor Carr was published in the FT on the Wednesday 7 February 2018. It is regarding the recent case of GKN, the engineering group, who is battling a hostile takeover from Melrose.

University of Edinburgh Business School’s Professor of Corporate Strategy, Chris Carr, has over 30 years’ experience researching strategic approaches to globalisation, comparing 21 countries worldwide through extensive field research, in over 300 companies including particularly the automotive sector.

A recent letter written by Professor Carr was published in the FT on the Wednesday 7 February 2018. It is regarding the recent case of GKN, the engineering group, who is battling a hostile takeover from Melrose. This topic has been hotly debated in the House of Commons with interest from the Prime Minister. The letter published is as follows:

Support for Melrose bid is shallow and short termist

Sir, I’ve worked at GKN and also interviewed almost 400 the world’s top companies over 37 years since, including its rivals, and I’ve scrutinised (totally independently) 259 years demonstrating exceptional global successes and re-structuring competences. City commentaries supporting Melrose’s bid are short-termist and shallow. Bids are excellent for keeping corporates on their toes, not least when succession blips arise; but GKN has demonstrated competence not only at building new businesses and taking them global, but also at ruthlessly divesting to deliver share-holder value. Melrose’s 15 record is good, albeit patchy, but bears no comparison with Hanson’s, or GE’s as the most successful conglomerate of the 20th Century and look what’s happened to them? GE are brilliant, do understand global business but even they have lost 30% of value in the 21st. The break-up game is far tougher today; it works with soft targets with little understanding of restructuring or where there are genuine strategic synergies. Look at the value GKN delivered from Westland Helicopters cannily joint-ventured and sold-on; or from building up and then selling on Brambles, returning massive cash straight to shareholders. It has not been complacent and its teams will now be in over-drive looking for further shareholder wins. Should shareholders take Melrose paper, they’ll own a rag-bag portfolio with no synergies and can only hope for desperate rapid sell-offs. Melrose-style conglomerates from the past, like BTR, have all gone. As the Chairman of another lamented to me “One day we were the City’s blue-eyed boys; the next day we lost support, the PE plunged, M&As were out, and before we knew it we were bankrupt”. These auto and aero parts businesses today are global. BAe, RR and GKN are the best global champions Britain has ever sustained; and GKN is as formidable as Melrose at re-structuring. Selling specific activities where buyers really can help to take these even more global (as with Tata Rover/Jaguar, or even Softbank/Arm) makes sense; turning to conglomerates for cheap 1970s style break-ups is bad news for shareholders, pension holders, and for a government less favourable to blatant short-termism, and which recognises that GKN has been quietly the most reliable partner it has ever had. Melrose would better pitching selectively for just one activity, perhaps more demonstrably ripe for improvement.

Professor Chris Carr, University of Edinburgh Business School. 0784 627 1424, or 0131 650 6307

Professor Carr’s article in Business History “Robust Strategies. GKN 1759 to 2013” provides a deep analysis of the corporate strategy issues involved. GKN is probably the UK’s biggest industrial company after British Aerospace Systems and Rolls-Royce, but is even more global and more enduring. It is the last of our major automotive companies, being a leading world auto parts company, and also in aerospace parts and defence.

If you wish to discuss this further with Professor Carr, please get in touch.