GKN keeps up US court battle

The long-running US court action against GKN, the car components and aerospace giant, edged closer to a conclusion yesterday after the group lodged an appeal against an order to pay damages of pounds 240m.

GKN shares rallied strongly, closing 23p higher at pounds 10.07, after it emerged that the court in North Carolina had turned down an attempt to extend the action, brought by franchisees of the company's US car exhaust chain, Meineke Discount Mufflers. The final ruling, received by GKN on Thursday night, reduced the damages award by 34 per cent, from the $601m provisional order two months ago to $390m (pounds 240m).

Around a third of the 2,500 Meineke franchisees had been excluded from the claim after they reached what amounted to an out of court settlement with GKN. Earlier this month a representative told the company's annual general meeting that the excluded franchisees were planning to launch a lawsuit to join in the action, a move the judge has now rejected.

The group emphasised the damages were well within a pounds 270m provision made in March, which had slashed GKN's pounds 363m annual pre-tax profits for last year. A relieved spokesman said: "The provision we made to cover the worst case scenario does now appear to be exactly that." However GKN estimated it had already spent almost $10m on the case, mostly to cover legal fees.

GKN was found guilty before Christmas of defrauding the franchisees by diverting advertising payments to an in-house agency. The original claim was for just $31m, but the jury at last year's hearing had used their discretion to multiply the award several times, stunning the company and analysts. The saga has taken its toll on GKN's share price, which has fallen from last year's peak of pounds 11.86 before the court judgment.

The appeal was expected to take a further 18 months to complete, although a spokesman said no cash would have to be paid to the court until the conclusion. In the meantime GKN has lodged a $416m bond with the court, underwritten by several banks.

Analysts predicted that the appeal would lead to a further reduction.

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