Melrose Takes Over GKN
Melrose takes over GKN: Capitalism Eating its own Entrails
We’ve all heard about GKN. This precision engineering firm has been around for more than 250 years, made the cannon balls fired at Waterloo and supplied components for the Spitfire. Now 6,000 skilled jobs in Britain are at risk because of GKN’s takeover by Melrose.
Who has ever heard of Melrose before? What do they produce? That’s a difficult question to answer. Melrose’s slogan is ‘Buy – Improve – Sell.’ The firm normally hangs on to an acquisition for 3 to 5 years before moving on to the next act of butchery.
It’s got to be said that’s a very successful modus operandi. Founded in 2003 with a capital of £13m, the firm is now ‘worth’ £43bn 15 years later. That represents a return to shareholders of 25% p.a. – pure magic!
Maximising shareholder value is the name of the game, and Melrose has certainly delivered. The shareholders of a modern capitalist concern are legally the owners of the firm. It’s theirs to build up or ruin. Hang on. Many of the GKN shareholders only clung to their bits of paper for a couple of months, before they saw the takeover bid could get them a quick buck. Really the idea that modern shareholders feel themselves to be owners of the company is a bit like a punter betting on the 3.30 from Chepstow regarding themselves as the owner of the horse they put money on.
Ownership of big modern companies takes the form of owning shares. Many shareholders are institutional investors such as pension funds who have no idea what the firm they have invested in produces. Investment managers just check out share prices in the Financial Times. They include hedge funds which are just shameless speculators. Shares go up and down without much rhyme and reason, but the underlying logic behind price movements is expected future profitability.
Note that useful production and social benefits have nothing whatsoever to do with the returns to shareholders and short term profit maximisation. Quite the reverse. It may well be a hindrance if a firm is investing long term in research and development. Shareholders want money and they want it now!
So GKN share prices, which were drooping, suddenly perked up when the news got around that a predator, a corporate raider, was on GKN’s trail. GKN share prices have soared by 40% over the past 2 months in anticipation of the coming slaughter. How can a share price jump that much if it is supposed to show what a company is really worth? It is what Marx called fictitious capital
Now, it seems, the dirty deed is done. Some blame the greed and disloyalty of GKN shareholders who sold up knowing the firm would go under. That is the nature of modern capitalism. Don’t expect anything else. Even the Daily Mail has called the takeover “an abuse of capitalism”. No – it’s how the system works.
The Business Secretary Greg Clark has been asleep on the job up to the last minute. Over the past week he has mouthed platitudes. He has sought reassurances from the asset stripper. Remember when rubber cheese maker Kraft took over Cadbury in 2010. They solemnly pledged to the government to keep the Somerdale plant open. Kraft lied and got away with it.
As Len McCluskey, General Secretary of Unite, commented, “Our company laws are a dog that won’t bark, and cannot bite. They reflect a short-term, opportunistic approach that is endemic throughout British business, ably assisted by our country’s weak regulatory framework for mergers and acquisitions.”
Shareholders count for everything; workers livelihoods and Britain’s manufacturing future mean nothing. What do you expect from a Tory Minister? Theresa May has spoken of an “Industrial Strategy: building a Britain fit for the future.” That was so much hot air. In fact the Tories are more subservient to the short term whims of individual capitalists than any other government. The asset strippers got away with it again.
Capitalism is a system of production for profit. In Britain that has led to deindustrialisation, a loss of millions of skilled permanent jobs in manufacturing. If a firm like GKN is seen to fail it should be taken over by a Labour government. The alternative is a permanent loss of skills and industrial expertise.
Meanwhile the three top execs at Melrose could be walking off with £285m if they play their cards right. They call this ‘value created’. We can suggest other epithets for trashing jobs and Britain’s industrial future. Over the takeover process itself City advisers are believed to have creamed off £160 for less than 60 days work. Again this is socially useless expenditure – and incredibly costly with it.
This is not the first time. At the same time as the Melrose drama was taking place Dominic Chappell was banned by the Insolvency Service from ever running a company again. Chappell bought BHS from Philip Green in 2015 for £1. The retailer collapsed the following year, shedding 11,000 jobs and putting the pensions of 20,000 more in jeopardy. Chappell should never have been allowed to be in charge of the company. He had already been bankrupted three times.
But Green has been let off the hook. He should have been banned too. He took over BHS in 2000 and ruthlessly ran the firm down. He relieved the firm of £422m in dividends over the next 15 years, sucking it dry. Apparently this is entirely legal. After all he was the owner along, with his tax-dodging wife Tina who lives in Monaco. BHS was his to deal with as he wished. He even acquired a knighthood along the way.
This must stop. Greedy, incompetent and crooked management should not be allowed to destroy workers’ livelihoods. The work force at BHS and at GKN could see the problems looming ahead. The only alternative to the road to ruin under capitalist bosses is workers’ control and management of industry. Let us commit Labour to that.