Blocking Melrose-GKN on grounds of national security risks Britain's status in the global economy

As a newspaper reporter, I spent five years working inside the House of Commons. I went there, convinced that much of what shaped our lives was determined by conspiracy – I was from a generation weaned on All The President’s Men, after all. Within a fortnight of my arrival, I realised it was chaos that called the shots.

The lack of joined-up thinking was palpable, the inability of politicians to see beyond knee-jerk reactions, favourable headlines and accompanying personal poll ratings was shameful.

It’s a view I’ve retained ever since. In fact, as I’ve got older and, I’d like to suppose, wiser, it’s one that has hardened.

Take the Melrose-GKN row. Britain is on the verge of having more say over its direction and standing in the global economic marketplace. Given the increasingly competitive nature of the field, that is an uncertain proposition. But it doesn’t need to be quite so unpredictable, if we give ourselves the best possible chance.

So, you might imagine that we would go out of our way to show we encourage business, making it as easy as possible to trade with us, and to invest here. You would, wouldn’t you?

But what do we do? Only be seen to be creating obstacles and seeding doubts in people’s minds when there should be none.

Gavin Williamson, the defence secretary, whipped up by an alliance of trade unions (who object to most takeovers anyway, for fear of job losses), MPs in whose constituencies GKN is located (ditto, jobs), and those who like to view the UK economy in nostalgic, splendidly patriotic terms, has decided to consider whether the merger could be reversed on “national security” grounds. (This, don’t forget, is a takeover that has been approved by the majority of GKN’s shareholders.)

This is because GKN, we’re told, is regarded as an integral part of our defence bulwark. Hmmm. Until Melrose came along, GKN was best-known for making car parts, and does not even rank among our top 50 military suppliers.

It’s down to the fact, seemingly, that GKN’s ownership is changing, that control is being handed God knows where. Er. Scrutiny of the respective share registers shows that Melrose’s top 10 shareholders were all GKN investors. Of the top 25 Melrose shareholders, 22 had shares in GKN. These include: BlackRock, with 7.2 per cent of Melrose and 6.6 per cent of GKN; Threadneedle with 4.6 per cent of Melrose and 3.6 per cent of GKN; and L&G with 3.1 per cent of Melrose and 2.6 per cent of GKN.

GKN, we’re warned, will fall into the hands of Johnny Foreigner. No. If anything, GKN will become more British. It will have a British CEO, and all the GKN businesses will be managed by British senior executives, in Britain. Perish the thought that the company will also be run by a team with an impressive record of performance, one used to producing results far stronger than the lacklustre numbers in recent years of GKN.

And yes, this is the same GKN that if it remained independent, was embarking on a sell-off programme that would inevitably have seen overseas businesses snap up some of its more attractive bits. Dana of the US was going to buy Driveline, Powder Metallurgy was almost certainly heading towards foreign private equity. Even the aerospace arm could have been destined for a new, US owner. (Melrose, by contrast, even before the defence secretary’s intervention, had agreed to commit to retaining GKN aerospace for five more years.)

If Williamson resolves the proposed marriage does pose a threat to national security, the baton is passed to the business secretary, Greg Clark, to refer it to the Competition and Markets Authority (CMA). The CMA is charged with producing a preliminary assessment. To date, as Bloomberg has highlighted, there have been seven deals where a notice on national security grounds has been issued.

But, in all seven, the buyer was foreign. They were allowed to proceed after supplying guarantees to the government. Melrose, by contrast, is not foreign, and it’s already provided assurances about GKN’s future.

All seven, too, raised more obvious national security concerns than Melrose-GKN. They were bigger defence players, or they were involved more deeply in the UK military system.

Among them was Atlas Elektronik of Germany buying Qinetiq’s Underwater Systems Winfrith unit in 2009. Winfrith supplied the Royal Navy. Atlas got the nod after agreeing to keeping British directors, incorporating units working on British defence programmes in the UK, and ensuring staff were security cleared.

When US giant GE tried to buy Smiths Group’s aerospace arm in 2007 for $4.8bn (£3.4bn), the division’s “critically important capabilities within the UK in the areas of combat, weapon and communications system integration” were cited. Nevertheless, the sale went ahead, once GE agreed to abide by certain conditions.

One of those deals even concerned the supposedly hugely patriotic GKN itself. In 2004, it agreed to sell for £1.1bn a half-share in helicopter maker AgustaWestland to Finmeccanica, which already owned the other 50 per cent. After assurances were provided, Finmeccanica got the green light.

If you thought the sale of a tank manufacturer could not be more concerning to the nation’s security interests, you would also be wrong. When General Dynamics from the US tried to buy British tank maker Alvis it was required to maintain UK incorporation for units contracting to British military programmes. In the end, General Dynamics’ efforts came to naught, as it was outbid by BAE.

Instead of being persuaded to review the Melrose purchase in the interests of national security, the government should focus on the national interest of building a world-beating economy. Even if a defence case against the merger can be made, and I’m struggling to see what it is, the business case for not blocking, for being seen to allow Melrose to proceed, is of much greater significance.

Chris Blackhurst is a former editor of The Independent, and executive director of C|T|F Partners, the campaigns and strategic communications advisory firm.