ALEX BRUMMER: Big battalion investors do nation a huge disservice when they sell engineering and aerospace crown jewels to leveraged financial buyers with no strategic vision
- The debt-fuelled model at Melrose was unsuited to an engineering enterprise like GKN
- It may be frustrating for Melrose’s already-rich top team that they might not achieve the supercharged bonuses they hoped to reap from GKN
The Melrose ‘Buy, Improve, Sell’ model is rusting up. Investors who put faith in the genius of Chris Miller, Simon Peckham et al at the time of the bitterly contested £8billion GKN takeover in 2018 must feel a little sick.
Admittedly, no one could have foreseen the pandemic and devastation it would bring to the motor and aerospace companies at the core of the historic UK engineering group which once built the Spitfire.
What is far more understandable is that the debt-fuelled model at investment company Melrose, and its famed takeover accounting, were unsuited to an engineering enterprise used to long lead times and with heavy research and development commitments. Paying down debt of £3billion when earnings have all but vanished and UK public offerings are moribund is challenging.
Under the microscope: Investors who put faith in the genius of Chris Miller, Simon Peckham et al at the time of the bitterly contested £8billion GKN takeover in 2018 must feel a little sick
The motor industry was in the doldrums long before the coronavirus and GKN’s biggest customer, Jaguar Land Rover, has been petitioning for a bailout. GKN hoped its work on an Edrive for next-generation electric cars would find favour with Volkswagen. It is no longer clear that will happen.
More spectacular is the crisis facing aerospace. The UK’s other big engineers, Rolls Royce and BAE, are immunised from disaster by large defence operations.
Only this week, Rolls benefited from a new engine contract for the Bell V-28 Valor long-range assault aircraft.
In contrast, Melrose/GKN makes vital wing parts for Airbus and Boeing and, with Atlantic travel closed, the headwinds have become almost impossible. European carrier Easyjet is among those to postpone Airbus purchases until 2022 at least.
It may be frustrating for Melrose’s already-rich top team that they might not achieve the supercharged bonuses they hoped to reap from GKN and the early disposal of the Nortek air conditioning offshoot.
But the real losers at Melrose are hundreds if not thousands of workers who face the sack, investors who have seen capital value slashed and dividends axed and UK plc, which risks losing out in the great tech race if R&D budgets are curtailed.
Big battalion investors do the nation a huge disservice when they sell the nation’s engineering and aerospace crown jewels – GKN, Cobham and Inmarsat – to leveraged financial buyers with no strategic vision.
Home-made
Kingfisher has long suffered from the threat of an end to the do-it-yourself culture as households in the UK preferred to get professionals to improve homes.
Previous growth prospects focused on Screwfix, the catalogue enterprise for the trade, which developed into a vibrant online offer. Lockdown and working from home have changed all perceptions.
Hardware stores and DIY were allowed to reopen in mid-April and Kingfisher car parks rapidly brimmed with owners of fashionable sports utility vehicles who filled up with everything they could get their hands on. The rush on Dulux has been so intense that Akzo Nobel – Dutch owners of the former ICI brand – has an order backlog.
Same-store sales in the quarter to July 18 were 21.6 per cent up on last year. We have heard endless grief about the latest 950 jobs to go at Marks & Spencer but the 4,000 jobs Thierry Garnier has created at Kingfisher, to support the company’s tripled online sales, barely have been noticed.
The big question for Kingfisher is whether the DIY revival is part of a trend or a Covid-19 one-off. There is little doubt that the disease is speeding up commercial change.
The decision by Natwest to extend home working until January for some is a case in point. Lockdown and home working habits, including finding time to change the doors on the kitchen cabinets, may be a great deal more permanent than we think.
The market is giving Kingfisher the benefit of the doubt. Shares more than doubled in a year, and rose 14.6 per cent yesterday.
Its inspirational creator, Sir Geoffrey Mulcahy, regarded touring B&Q’s big sheds on wet Saturdays as a good day out. He will feel vindicated.
Indian summer
Hindustan Unilever (HU) is rebranding its soaraway skin-lightening cosmetic brand ‘Fair & Lovely’ to ‘Glow & Lovely’ amid Black Lives Matter tensions.
None of this is damaging HU, in which Unilever has 61 per cent, with demand for Lifebuoy sanitiser and the newly acquired Horlicks brand doing a roaring trade, and carrying the shares to five-year high.
Another pandemic winner.