Image copyright GKN

The proposed takeover of UK engineering giant GKN should be blocked, a group of 16 MPs has said in a letter to Business Secretary Greg Clark.

The letter, led by Labour MP Jack Dromey and Conservative MP Rachel Maclean, is the latest sign of worry over the deal.

Melrose Industries has offered £7.4bn for the 259 year-old firm.

The Pensions Regulator has warned that the move could affect the company's ability to fund its pension scheme.

GKN is defending itself against the approach from Melrose, a firm that specialises in buying up industrial companies it believes are undervalued and restructuring them before selling them on.

That has raised fears that GKN, one of the UK's largest industrial firms, will be broken up and sold to overseas owners.

There are also worries over the level of additional debt GKN would take on if the takeover goes ahead.

The letter from the cross-party group of MPs says: "GKN is one of the most prominent engineering firms in the UK, the third biggest in our country. It is a world class success story, the pride of British industry which supplies components to companies such as Jaguar Land Rover.

"We are writing to you because we all have a GKN plant and/or supply chain-affected firm in our constituencies. Due to this, we have shared our concerns about the proposed hostile takeover bid by Melrose and want to express to you why we believe the takeover should not succeed."

Pension worries

Bosses of both companies are due before a parliamentary committee on Tuesday as the battle over GKN intensifies.

Ahead of the hearing, the Work and Pensions Committee published a letter from the Pensions Regulator expressing concern over whether Melrose's takeover would weaken GKN's position in fulfilling its pension obligations.

The Pensions Regulator said: "From the outset we have been concerned that the increased leverage involved in the proposed takeover by Melrose is likely to have a detrimental impact on covenant".

"Covenant" refers to the company's ability to fulfil its current and future pension obligations.

The MPs' letter also expresses strong concern about the impact of any deal on the pension scheme.

It says they are worried that: "Melrose may well try to undertake a packaged administration when it sells off constituent parts of the company, and send the fund to the Pension Protection Fund, passing the responsibility to others, ensuring it no longer shoulders its responsibilities, and cutting its payroll costs".

Melrose says that it has a history of improving company pension schemes, rather than running them down.

"Melrose has consistently strengthened the pension scheme covenants of the businesses that it has acquired. Every time we have disposed of a business we have left the business free from deficit.

"We have also stated that we will improve the position of GKN pensioners, making a £150 million cash contribution to the GKN pension schemes."

Image copyright GKN

Companies involved in takeovers can submit details of their plans to the Pensions Regulator and obtain clearance if the regulator is satisfied that they are putting sufficient mitigating measures in place.

However, applying for clearance is voluntary.

The Work and Pensions Committee's chair, Frank Field, said he thought pensioners would be surprised to hear that a pension scheme could be transferred to a new owner without the Pensions Regulator having a say.

He called for the introduction of mandatory clearance checks for such cases.

GKN's defined benefits pension scheme has 32,000 members including 17,000 who have already retired.

It has a deficit of £1.1bn, despite an additional contribution of £250m made into the scheme last October.

A brief history of GKN

Founded in 1759 as an ironworks in South Wales

Involved in aerospace, automotive, materials and manufacturing engineering

Operates in 30 countries with 59,000 employees

Employs 6,000 staff in the UK, mostly in aerospace and automotive technology

Ten UK sites, including Bristol, Cowes, Luton, Portsmouth, Birmingham and Telford.

Chief executive Anne Stephens took over in January

GKN raised the issue of its pension scheme in January, arguing the takeover would put future pension security at risk.

Melrose defended itself saying it had "a long track record of responsibly funding pension schemes" and said there was no cause for GKN pensioners to be concerned.

Melrose also said it had offered to make a voluntary cash contribution of up to £150m into GKN's pension schemes when it first made a bid for the firm.