Damages may spark GKN sale

GKN, the automotive parts maker and defence group, may dispose of its Meineke Muffler Discount Stores business in the US following the award of pounds 91.6m in damages by an American jury against the company in December.

A judge is due to deliver his verdict early next month, with a figure for damages based on the jury's recommendation.

GKN believes the judge may reduce the award by a small amount, but not enough to persuade GKN to drop its planned appeal. If the company loses the appeal, however, it could see the damages more than tripled to half a billion dollars.

The company says that until the court case Meineke had been a satisfactory business and a "steady little earner". However, a company spokesman said it no longer "fitted comfortably" in GKN's three core businesses.

Although a supplier of automotive parts, it is currently grouped in the industrial services arm, alongside Chep, the fast-growing palettes business, and Cleanaway, the UK waste disposal operation, which together dwarf the franchise operation.

The award for damages was made after some franchisees claimed that Meineke should have passed on to them commission rebates it obtained on press advertising over a period of time. The award of pounds 91.6m was ordinary damages, for the lost commission plus interest.

GKN is convinced, however, that it has a strong case for seeing the damages reduced substantially, although it believes it will probably have to make some payment.

The spokesman said that GKN would review Meineke's long-term future in the group after the appeal process was concluded, which would not be for several months. He added that a sale would be a possibility.