Trustees of GKN’s pension schemes have stressed that any potential buyer of the company, which rejected an unsolicited takeover approach from Melrose Industries last week, should be aware of the scheme’s recent funding positions.
GKN announced a transformation programme outlining the company’s future structure and rejecting Melrose’s proposal on January 12.
The board intends to separate GKN’s aerospace and automotive businesses, following an intensive review and analysis of the economic benefits and costs.
In response, trustees of the GKN Group Pension Scheme 2012 and the GKN Group Pension Scheme 2016, which have a combined membership of around 32,337 people, have announced details of their funding positions.
As of the latest funding update provided by the schemes’ actuary on September 30 2017, adjusted for the lump sum contribution of £250m from the company received in October 2017, the schemes had an aggregate deficit on a gilts flat basis of £1.1bn, and an aggregate deficit on a section 75 basis of £1.9bn.
As at 30 June 2017, adjusted for the lump sum contribution of £250m from the company received in October 2017, the schemes had an aggregate deficit on an IAS 19 basis of £0.8bn. The IAS deficit of £1.8bn reported by GKN in its half-year results to 30 June 2017 relates to all of the company’s pension schemes including overseas schemes.
The trustees have stated that “any material change to the corporate and capital structure of GKN would lead the trustees to reassess the strength of covenant going forward and determine appropriate funding plans based on that covenant and its associated level of risk.”
They highlighted that, given the scale of the deficits detailed in their statement, the schemes are very substantial stakeholders in the business with a considerable level of reliance on the strength of the GKN covenant.
Furthermore, the trustees have said that they expect full engagement with management and with any relevant third parties, at the appropriate time, to ensure protection and mitigation for any impacts arising from change in the strategic direction or future ownership of the company.
They added that, "in any discussions, the trustees’ focus would be to safeguard members’ interests".
