GKN trustees agrees 'positive' mitigation measures with Melrose
The trustees of GKN's pension schemes have agreed a package of mitigation measures that would improve funding to a "more prudent level" if Melrose's offer is accepted by shareholders next week.
The agreement is an improvement on Melrose's final offer on 19 March of up to £1bn cash contributions for the defined benefit (DB) schemes.
The trustees also said the enlarged Melrose Group would "provide strong covenant support" to the schemes following "whatever the outcome" of the shareholder vote on 29 March.
This would comprise an initial contribution of £150m, of which £60m will be paid to the GKN Group Pension Scheme 2016 scheme at a discount rate of gilts plus 25 basis points (bps). Melrose said in a statement this would "secure self-sufficiency" for the scheme.
The GKN Group Pension Scheme 2012 will move to more prudent funding basis using a discount rate of Gilts plus 75bps, achieved by doubling annual contributions to £60m, and includes an agreed formula for contributions in the event of disposals.
Payments to the schemes will be secured by Melrose Industries guarantees.
According to the chairmen of the schemes, Michael Fairbrother and Rufus Ogilvie Smals, the contributions mean the schemes would be funded to a "more prudent level".
The chairmen said: "It means that there are now firm commitments from both Melrose and GKN to support the pension schemes. We have taken extensive advice and are satisfied that both agreements provide appropriate mitigation to the schemes and that they are in the best interests of our members."
The trustees were advised by Penfida, Pinsent Masons and Mercer.
In an announcement on the London Stock Exchange this morning, Melrose said it continues to persuade the investors of GKN to accept its hostile £8.4bn bid while the FTSE 100-listed engineering firm continues to oppose the deal.
Melrose chairman Christopher Miller said: "The agreement with the GKN Pension Scheme Trustees is another concrete example of Melrose's exemplary track record with pension schemes and its desire to look after all stakeholders.
"This agreement would significantly improve the position of the members of GKN's pension schemes and is in line with our original plans for the business," Miller added. "We are delighted to secure another important step in our offer to buy GKN."
The announcement comes after GKN slammed Melrose for making 'misleading' comments relating to the deficit of the engineering giant's two UK DB schemes last week, shortly before Melrose pledged to contribute up to £1bn to GKN's pension schemes as part of a final offer to acquire the business.
Melrose's increased bid also followed the announcement earlier in the month that GKN had reached a £4.3bn cash and shares deal to merge its automotive driveline business with engineering firm Dana.
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