By Nils Pratley
Anne Stevens, the chief executive of GKN, did not have to retract all her weekend statements. One that stands – and is obviously correct – is that hedge funds “could not give a crap” about the engineering firm’s future. Their only interest in Melrose’s £7.9bn hostile bid lies in making money for themselves.
Hedge funds, mostly merger arbitrage funds, are estimated to control 20%-25% of GKN’s shares, either directly or though derivative contracts. The size of that collective holding is the reason why Melrose enters the last lap of this contest as favourite to win. New York-based Elliott Capital is voting its 3.8% holding in support of the bid and most of its co-travellers are likely to do the same.
If Melrose does indeed succeed on Thursday, does that mean vultures such as Elliott will have dictated the outcome? Sorry, but that narrative is too simple. These avian creatures cannot conjure GKN shares out of nothing. They have to buy, or borrow, stock from somebody. The better question is: who created the speculative opportunity?
In many cases, the sellers will be conventional long-only funds – the same people who happily sign warm and worthy charters declaring themselves to be responsible stewards of capital. Stevens should have taken a pop at them. Some will have flogged the holdings without even waiting to hear GKN’s full defence. Most will not have bothered to ask the ultimate holders, including pension schemes and private investors, which way they’d like their investments to be voted.
A popular cry in these situations is to disqualify short-term shareholders from voting on takeover bids. High-profile industrialist Sir John Parker endorsed the idea in the Sunday Times at the weekend, just as Sir Roger Carr, chairman of Cadbury when it fell to Kraft in 2010, did in the past.
For more read the full of article at The Guardian
