TransDigm trump Parker Hannifan’s offer from last week, as low post-Brexit valuations leave UK firms easy prey for foreign acquisition
The defence and aerospace company Meggitt has received a second takeover offer from a rival in the US that values the FTSE 250 manufacturer at £7.1bn, in a move that could spark yet another bid battle for a historic British company.
Meggitt, which makes wheels and brakes for military fighter jets, announced on Wednesday that US aerospace company TransDigm had submitted a 900p-a-share takeover bid.
It trumps an 800p-a-share offer last week from a US rival, Parker Hannifin, that valued Meggitt at £6.3bn. The latest offer was nearly double Meggitt’s share price before Parker’s approach.
Meggitt’s board has already recommended Parker’s offer to shareholders. TransDigm’s bid is only preliminary and non-binding, but a firm offer could spark a bidding war.
The share price of Meggitt rose by 16% to 830p on Wednesday after the TransDigm approach was revealed. However, it remains short of the 900p offer price, suggesting investors believe there is a significant possibility of the deal falling through.
It is the latest attempted takeover of a British listed company by potential foreign owners, amid persistent concerns over the apparent undervaluation of UK companies. Some analysts have cited concerns over Brexit among the factors holding back British companies.
As well as takeovers by rivals, the last year has been particularly notable for the number of deals backed by private equity investors. Supermarkets Asda and Morrisons, St Modwen Properties, private jet company Signature Aviation, fund administrators Sanne and Equiniti, and infrastructure investor John Laing have all been targeted for buyouts. Bargain hunters have also had the British aerospace industry in their sights, with Senior and Ultra Electronics both among the targets.
Wiltshire-based inhaler manufacturer Vectura is in the middle of a takeover struggle between US tobacco company Philip Morris and private equity firm Carlyle.
Takeovers for British companies hit a 14-year high by value in the first seven months of 2021, driven by relatively cheap valuations due in part to the pandemic and Brexit.
Meggitt, a member of the FTSE 250 index of mid-sized companies, employs 9,000 people worldwide, including 2,300 in the UK. It mainly produces parts including wheels, brakes and fire suppression systems for military and civilian jets, such as Lockheed Martin’s F-35 Lightning II aircraft.
Meggitt said it intended to publish documents giving more details on Parker’s proposed deal next week. In the meantime it has given TransDigm equal access to information for due diligence purposes.
The company said it would assess whether TransDigm has given “commitments at least equivalent to those made by Parker”, after the latter promised to keep Meggitt’s UK headquarters in Coventry, as well as maintaining the headcount in its research and development, product engineering and manufacturing operations. However, Parker is expected to cut an undisclosed number of jobs after the takeover.
Meggitt’s two suitors are relatively closely matched. TransDigm, whose market value is $34bn (£24.5bn), collected revenues of $5.1bn in 2020 and profit of $653m. That compares to Parker’s market value of $38.5bn, with 2020 revenue of $13.7bn and profit of $1.2bn.
The potential takeover of Meggitt is likely to prompt scrutiny from the UK government, which is already considering the proposed takeovers of Ultra Electronics by Cobham, which is backed by US private equity investor Advent, and of Newport Wafer Fab by Nexperia, a Chinese-owned computer chip manufacturer. The business secretary is understood to be taking an “active interest” in Cobham’s approach for Ultra, while prime minister Boris Johnson has personally ordered a review of the wafer maker.
Rory Smith, an analyst at investment bank Investec, dubbed Meggitt’s likely takeover as a “Megxit” from the UK stock market. But he warned of “heightened risks to a blissful union”, stating that “UK political intervention is not unimaginable.
A government spokesperson said: “Under the Enterprise Act 2002, the business secretary has powers to intervene in mergers and takeovers which raise national security concerns.
“While commercial transactions remain primarily a matter for the parties involved, the government is closely monitoring the proposed acquisition of Meggitt.”
TransDigm did not immediately respond to a request for comment.[SOURCE]