GKN rejects hostile £7.4bn takeover bid from Melrose

The engineering giant GKN has fought off a £7.4bn hostile takeover from Melrose Industries, according to BBC News.

Melrose, which specialises in turning around struggling businesses, claimed it could “deliver significantly greater benefits” for GKN shareholders compared to the current management. However, GKN said that Melrose had “fundamentally undervalued it” and that the terms of the revised offer, increased from £7bn in an initial bid, were “effectively unchanged.”

The offer proposed that current GKN shareholders would own 57% of the new, larger group and would become “major participants in the potential future value creation in both the GKN and Melrose businesses.”

A statement from GKN on Wednesday said that Melrose’s bid would “materially dilute the exposure of GKN shareholders to the meaningful upside opportunities that the board believes are present in the group.”

In 2017 GKN began a wide-ranging review of its business, prompted by lower profit margins and cash generation. There was a profit warning for the company after problems in its aerospace division were uncovered.

The company announced a strategy named Project Boost earlier in January, which would increase cash flow by cutting costs and expenditure as well as introducing tighter pricing controls. There are also plans to split the aerospace and automotive divisions into separate companies at some point.

Heathrow bids to make third runway 300m shorter

Heathrow Airport has proposed making its third runway 300m shorter in a bid to cut costs in its development scheme, according to the Guardian.

The northwestern runway would be reduced in length by 300m to reduce costs to £15bn as a way to help ensure the plans go ahead. The government has supported expansion of Heathrow but says this must not mean higher fares for passengers.

The plans have also been amended to incorporate the third runway traffic within the two existing terminals, rather than building a new terminal. Heathrow claims the third runway can be delivered for £14.3bn, £2.5bn less than the original price. Construction would be delivered in phases to reduce expense and disruption.

With a shorter runway the nearby M25 would still need to be moved 150m to the west, but the airport now proposes that a shallower tunnel could be used in combination with a slightly ramped runway.

Heathrow has also said it will award higher compensation to those living in affected areas, enforce a six-and-a-half hour ban on night flights and stay within air quality limits.

It is expected that a parliamentary vote will be held on the expansion plans at some point this year as a national policy statement on aviation is put forward for debate.

Emma Gilthorpe, executive director for expansion at Heathrow said: “We need feedback to help deliver this opportunity responsibly and to create a long-term legacy both at a local and national level. Heathrow is consulting to ensure that we deliver benefits for our passengers, businesses across the country but also, importantly, for those neighbours closest to us.”

BoE says UK jobless rate will fall in 2018

The level of unemployment in the UK is set to fall faster than the Bank of England (BoE) and other economists had predicted, according to a statement from BoE policymaker Michael Saunders reported by Reuters.

Saunders said that although the short-term outlook for growth was mixed, the economy could grow faster than the sustainable long-term trend, which would push up inflation.

The BoE figure said: “Balancing out the positives and negatives, the near-term outlook for the economy is not great, but nor is it terrible.”

Saunders said that any interest rate rises are likely to be limited and gradual. In November 2017, the BoE said financial markets should expect two more quarter-point interest rate rises by 2020, which would raise interest rates to 1%, up from the current level of 0.5%.

Unemployment rates are set to fall to 4% in 2018, down from 4.3% in the three months to October. This is lower than a BoE forecast in November, which predicted the rate would fall to 4.2% by the end of 2017 and remain at that level throughout 2018.

For the first time since 2009, wage growth in the UK is set to reach or exceed 3% this year. Fresh growth and inflation forecasts from the BoE are expected in February 2018.

Carillion enters liquidation

The construction company Carillion has announced that it will go into liquidation. Government-backed attempts to negotiate a deal to save the company failed, according to BBC News.

The contractor is the UK’s second largest construction company but it ran into trouble after incurring large debts and losses on major projects. The collapse of the company will also threaten many smaller firms owed money by the contracting giant.

Carillion is involved with many high-profile projects including HS2 high speed rail line and the construction, running and maintenance of schools, hospitals and prisons. It is the second-largest supplier of maintenance services to Network Rail and it maintains 50,000 homes for the Ministry of Defence.

The company employs 43,000 staff worldwide, with 20,000 based in the UK. Carillion chairman Philip Green said the liquidation was a “very sad day” for workers, suppliers and customers of the company.

There are also concerns for Carillion workers’ pensions. The pension fund for employees has a deficit of almost £600m and will now be managed by the Pension Protection Fund or PFF.

Bernard Jenkin, Conservative Chairman of the House of Commons Public Administration Committee, said the collapse “really shakes public confidence in the ability of the private sector to deliver public services and infrastructure.”

Jenkin said: “You’ve got to treat yourself much more as a branch of the public service, not as a private company just there to enrich the shareholders and directors.”

Glasgow Airport plans to change flight paths

Airport chiefs have warned that Glasgow’s flight paths are no longer fit for purpose, according to BBC News. A 13-week consultation plan has been launched to assess whether the flight paths, which have been in use since the 1960s, should be amended.

New flight routes have been proposed, with advocates claiming they will enable the airport to cope with more passengers and reduce airspace congestion. However, the proposals have been met with opposition from local people who are concerned about noise pollution affecting their homes.

The proposals for change have been issued as part of the UK Future Airspace Strategy (FAS), supported by the Civil Aviation Authority.

The plans involve removing ground-based navigation aids and relying on satellite systems instead. The ground-based systems currently in use by Glasgow Airport are to be decommissioned in 2019.

Using satellite systems could help to make airspace management more efficient, reducing the time planes queue in the air and thereby cutting C02 and fuel emissions. It is estimated that the change would allow for CO2 emissions to be cut by 21% (12,910 tonnes).

Mark Johnston, operations director at Glasgow Airport, said: “The flight paths used at Glasgow Airport have not changed in over 50 years and, as is the case with the wider UK airspace infrastructure, they are simply no longer fit for purpose.

“We now need to ensure the way we manage our airspace matches the advancements that have been made in aircraft technology.”

2017 saw slowdown in UK house price rises

Figures from the Halifax confirm that UK house prices grew much more slowly in 2017 than in 2016, according to BBC News.

Halifax, the UK’s largest mortgage lender, said average prices rose 2.7% in 2017, as opposed to a 6.5% increase in 2016. This represents the lowest rise since 2012 on a calendar year basis.

The lender says that sluggish real wage growth and ongoing uncertainty about the nation’s economic future had contributed to the slowdown. The average property price at the end of 2017 was £225,021.

Halifax said that in December 2017 house prices fell by 0.6%, the first monthly decline on record since June 2017.

Russell Galley, managing director of Halifax Community Bank said: “Nationally house prices in 2018 are likely to be supported by the ongoing shortage of properties for sale, low levels of housebuilding, high employment and a continuation of low interest rates making mortgage servicing affordable in relative terms.

“Overall we expect annual price growth to continue in the range of 0-3% at the end of 2018.”

How will the EU’s GDPR affect the UK Economy?

General Data Protection Regulation (GDPR) is one of the EU regulations that the UK has committed to retain when the UK officially leaves the European Union. The regulation was adopted on 27 April 2016 by the European Union and becomes enforceable on 25 May 2018.

GDPR is designed to protect the personal data of all EU residents and visitors. The regulation will do so by providing standardized data protection laws across the EU and establishing personal data freedom as a fundamental human right. 

Given the number of data breaches in the last few years, the regulation is important. However, it may come at a cost to the economy, and to businesses that fail to properly prepare.

The law applies to any company that stores information about a citizen in Europe. That also applies to companies outside Europe that sell to citizens on the continent. Therefore, even without the government’s plan to adopt this EU regulation, UK companies that have customers and/or clients in EU countries would still need to comply.

Where previous legislation may have left a lot open to interpretation, GDPR is very specific about which entities are responsible for protecting data. It’s also very specific about what constitutes personal data. And, the penalties for non-compliance are severe too, with fines as high as €20 million or 4% of an organization’s total global revenues in the previous year.

The regulation will affect many businesses in the UK, including small businesses. Yet, by June this year, 61 percent of companies had reportedly not yet begun GDPR implementation.

The impact on the economy could be wide-ranging. Given the possible level of non-compliance, it may come in the form of fines, which The Financial Times have estimated could reach billions of pounds for large companies. It’s even less likely that companies outside of Europe will be ready. This may result in certain companies being blocked from doing business in the UK, which could have knock-on effects throughout the economy.

But compliance will come at a cost too. The regulation is likely to have a disproportionate impact on start-ups and SMEs. All companies that gather any form of data on customers will have to be able to supply that data to each customer if requested to do so. In addition, if a customer requests them to delete specific data they will have to do that too. The capacity to do that could be a far bigger burden for smaller companies that don’t enjoy the economies of scale that large companies do.

The types of companies that will be most affected are those engage in big data analytics and those that prospect for customers using personal data. This will also affect some companies that outsource data analytics, and of course the companies they outsource to. In order to comply with the regulation, they may have to move these roles in-house.

Banks, which store massive amounts of data, will have the added burden of dealing with the potentially conflicting requirements of MiFID II and GDPR. The former requires that certain data be kept for at least five years, while the latter may penalise companies for keeping data they’re not allowed to.

However, there are manageable solutions for companies that take the right steps. For instance, if data is anonymized by removing personal details from each record, the data can be used for analysis without breaching the regulation.

Companies can also store data as long as they have customers consent. They just have to make sure they have that consent and manage data appropriately. In short, the GDPR asks companies to take responsibility for customer data.

The overall impact on the economy will come down to the way companies approach GDPR. In some ways, companies have taken liberties with data in the past. If the UK’s companies now become proactive and manage data responsibly, the impact will be muted. In that case, it will only be a few companies that mine and share data that will be affected, and there should be little impact on the overall economy. On the other hand, if they treat is as a nuisance and take only superficial steps, we may see some large fines being handed out.

£24m contract for M49 Avonmouth junction awarded to Galliford Try

Highways England has awarded a construction contract for the building of a new motorway junction to Galliford Try, according to Construction Enquirer.

The £24m contract will see the firm construct a new M49 junction near Avonmouth, Bristol. The two-bridge junction design incorporates an existing bridge and adds another bridge directly beside it.

The two bridges will feed into a single roundabout spanning the motorway with new access and slip roads on both sides of the junction, connecting fully with traffic from the north and south.

The aim of the junction is to improve road access and connect into the Avonmouth and Severnside Enterprise Area from the motorway. The initial preparation work is underway, with construction expected to begin in early 2018.

Highways England South West Regional Delivery Director Nick Aldworth said: “The contract announcement represents a major step, ahead of us starting work on a scheme which will bring real benefits to the South West economy.

“We recognise the strategic importance of the Avonmouth and Severnside Enterprise Area as a key regional employment site and that is why we are helping to unlock economic growth in the area by building this new junction. As well as boosting the local economy, the junction will also improve access to the regional road network and relieve traffic on local roads.”

Hammerson retail centre owner to take over rival Intu in £3.4bn deal

Retail centre owner Hammerson is to take over its rival Intu in a £3.4bn deal. According to BBC News, the takeover will create the UK’s largest property company with a value of £21bn.

Intu is currently the owner of the Lakeside shopping centre in Essex and the Trafford Centre in Manchester. Hammerson is the owner of Brent Cross in London and Bicester Village designer outlet.

The combined group will target fast-growing markets in Spain and Ireland. As the news emerged, shares in Intu rose 19% while Hammerson fell 3%.

Hammerson chairman David Tyler said: “This transaction will deliver real value for shareholders. The financial strength of the enlarged group and its strong leadership team will make it well-placed to take advantage of higher growth opportunities on a pan-European scale.”

John Strachan, chairman of Intu said: “Intu offers high-quality retail and leisure destinations in the UK and Spain, which, when merged with Hammerson’s own top-quality assets in the UK, in France and in Ireland, present a highly attractive proposition for retailers and shoppers in Europe’s leading cities.”

The new firm is to be led by Hammerson chief executive David Atkins and chaired by Hammerson chairman David Tyler. Hammerson shareholders will own 55% of the combined firm and Intu shareholders will retain 45%.

GlobalData retail analyst Sofie Wilmmott said the combined group would have a stake in 12 of the UK’s 20 super-malls, defined as shopping centres with more than 20 million customers a year and more than 20m sq ft.

LSE CEO resigns, Chairman will not seek re-election

Xavier Rolet has resigned as CEO of the London Stock Exchange (LSE) and the organisation’s Chairman Donald Brydon will not seek to be re-elected, according to Reuters.

The announcement comes after a major shareholder, hedge fund TCI, called a shareholder meeting to challenge the LSE’s management succession plans. TCI accused Brydon of trying to push Rolet out, and sought to oust Brydon instead.

The LSE’s statement said there had been “a great deal of unwelcome publicity” around Rolet’s departure and that this “has not been helpful to the company.” Rolet said: “At the request of the board, I have agreed to step down as CEO with immediate effect. I will not be returning to the office of CEO or director under any circumstances.”

Rolet has been at the head of the LSE for more than eight years. He had previously said he would leave at the end of 2018. Brydon has confirmed he will not seek re-election as Chairman at the company’s AGM in 2019.

The LSE is facing a challenging period as some of its derivatives clearing business passes to Deutsche Boerse due to Brexit. There has been speculation that the LSE could be subject to a takeover bid by a rival such as ICE, although it may be difficult to obtain approval of competition authorities for such a deal.

UBS analyst Michael Werner said that Rolet leaving the LSE indicated an uncertainty about future direction: “With concerns increasing about the ability of (LSE unit) LCH to maintain share of the over-the-counter clearing business in a Brexit scenario, the timing of Mr Rolet’s departure could pose a challenge for the firm defending its market share from Deutsche Boerse.”