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GKN board says Melrose pension claims are 'misleading'
One of the most intense games of corporate ping-pong continued apace on Tuesday, as GKN responded to Melrose's latest allegations over its UK pension schemes.
The FTSE 100 firm had come under fire from turnaround specialist Melrose on Monday - which is working to convince GKN shareholders to accept its hostile takeover bid, as the deadline for acceptance looms.
GKN said on Tuesday that Melrose's comments were "misleading as to the true status" of its pension obligations, post the proposed combination of its Driveline business with Dana.
It said that, as part of the transaction with Dana, GKN would transfer £1.375bn of gross pension and post-retirement medical scheme liabilities, and £818m of pre-tax deficit.
In relation to the remaining pension liabilities, under its binding agreement with the UK pension trustees, GKN said it had agreed actions to eliminate the IAS 19 deficit of its UK schemes, remove the need for expected future cash contributions into the UK schemes, reduce the gross UK IAS 19 liabilities of its schemes to under £2 billion, and substantially reduce the volatility of the remaining UK schemes.
The stand-alone Aerospace business was expected to retain an investment grade credit rating with conservative leverage ratios, GKN claimed.
In comparison, having criticised the well-established and proven liability management exercises agreed between GKN and the trustees, the board said Melrose had not to date agreed any meaningful short-term actions to reduce the existing scheme liabilities.
"GKN has a clear and comprehensive plan to reduce its pension liabilities and eliminate the deficit in its UK pension schemes," said GKN group finance director Jos Sclater.
"We have a binding agreement with the trustees which works for all stakeholders - the scheme members, the trustees and the company and its shareholders."
Sclater said that a month ago, Melrose appeared to suggest that its plan to pay £150m into the pension scheme was sufficient.
"Now it appears to have unveiled a £1bn plan that would achieve less than GKN's own agreement with the trustees, at a greater cash cost which would erode shareholder value.
"I think our shareholders deserve better."