Snow lay thick on the ground in Westminster as demonstrators carrying a large banner reading “Stop the GKN takeover” marched on parliament. It was February 2018, and, inside, Telford MP Lucy Allan was pledging to protect jobs at the historic engineering company, in the face of its hostile takeover by buyout specialist Melrose.
Six years on from one of the most acrimonious takeover battles in recent years, old wounds are likely to be reopened this week, when 20 top Melrose executives scoop shares worth more than £300m.
The performance plan was created in 2020 and, on Friday, Melrose bosses will learn the exact value of their stock, expected to be about £320m. The staggering sum is the result of motoring share price growth, with more than £4bn added to its value over the four-year period. The payout is likely to add to controversy over executive pay, after bumper deals for bosses including AstraZeneca’s Pascal Soriot and David Schwimmer of the London Stock Exchange.
The payout will also mark the end of an era for Melrose, which was set up in 2003 by Jock Miller, David Roper and Simon Peckham – two former accountants and a lawyer respectively. A series of big industrial acquisitions transformed it into a stock market heavyweight. Its motto to “buy, improve, sell” companies – including offloading assets – gave it a reputation as a public company with private-equity instincts.
But it was with the GKN deal that Melrose landed squarely on the radar of parliamentarians. GKN was a British engineering stalwart: starting life as an ironworks in south Wales in 1759, it had grown to manufacture helmets and Spitfires during the second world war and later produce components for aerospace companies and serve carmakers, including Jaguar Land Rover. By 2018, it had become a plodding also-ran, with profits under pressure and no boss when Melrose swooped.
Melrose’s image as an asset stripper – keen to cut jobs, break up companies and sell them on while taking huge pay deals – riled MPs and unions, who came out to bat for GKN. The Tory MP Robert Halfon described Melrose as “robber baron capitalism at its worst”, while ministers were accused of getting involved too late not doing enough to prevent the takeover.
The six years which followed have been partly predictable: there have been factory closures, job cuts, huge executive pay packets and a demerger of the GKN automotive, hydrogen and powder metallurgy businesses. Shares in Dowlais, the car parts business created by the demerger, have slumped 40% since listing a year ago.
Melrose has also surprised critics, however, by revamping its business model and even changing its mantra, to “design, deliver, improve”. GKN has not been gutted, and Melrose refocused to become a specialist aerospace company centred on it, with operations in the US, UK, Sweden and the Netherlands. It boasts high-end work, including on the F-35 fighter jet programme.
Despite taking a hit from Covid’s grounding of airlines and the woes at Boeing, it appears to be a business on the front foot – notching up profits of £390m on £3.4bn of revenue in 2023. It is now valued at £8.1bn, even outstripping the value of GKN when it was a larger group at the time of the takeover.
As a result, executives will share in a payout that equates to £16m each, but which will skew towards larger gains for the most senior bosses. Peckham, meanwhile, was the final of the founding trio to step down, in March, and launched a new dealmaking venture, Melvest.
He told the Sunday Times the bumper award represented a “good payout”, but shareholders had received far more. “You could take a view that no one should earn more than this or that, but I would say that’s capitalism working,” he said.
Andrew Speke at the High Pay Centre says: “The £300m-plus Melrose is paying out to its executives is reflective of the wider issues of executive pay in the UK.
“Companies paying very high amounts to a larger number of senior employees, while paying many of their workers very modest salaries, shows the potential companies have to raise the pay of the workers, were they to realign their priorities.”
