Parker swoops on Britain's Meggitt in $8.8 billion aerospace deal

·3-min read

By Muvija M

(Reuters) -Parker-Hannifin has agreed to buy its London-listed rival Meggitt for 6.3 billion pounds ($8.8 billion), with the U.S. company making a series of commitments, including on UK jobs, to fend off any potential concerns about the deal.

The takeover is the latest example of corporate America's appetite for British companies, whose valuations are proving attractive partly as a result of the impact of the coronavirus pandemic and Brexit.

In an initial response, the government said it was "closely monitoring" the proposed takeover of the defence and aerospace company, based in the central English city of Coventry.

The 800-pence-a-share cash offer marked a 71% premium to Meggitt's last closing price and compares with the stock's pre-pandemic high of 701.8 pence. The stock jumped as much as 62% on Monday to an all-time high of 758 pence.

The deal-making has prompted concerns about high-profile British companies being bought by private equity firms, which then seek to cut costs before selling on the business.

A $3.6 billion bid last month from Cobham, owned by U.S. private equity firm Advent, for defence supplier Ultra Electronics has already attracted the attention of the British government.

Parker Chief Executive Tom Williams tackled some of those issues in a conference call with reporters on Monday. "We are not private equity," Williams said.

"We intend to own Meggitt for a very, very long time," he added, noting his century-old company had bought 80 companies in the last two decades.

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Nick Cunningham, analyst at equity research firm Agency Partners, said it was unlikely that the UK government would stop the Meggitt deal, given Parker's proposed safeguards.

"Politically it's a much more convincing bid than that for Ultra, as Parker is an industrial buyer and is likely to keep the majority of Meggitt's aerospace activities, which is the bulk of the group," Cunningham said.

Meggitt counts the Ministry of Defence (MoD) as well as companies including Petrobras and Rolls-Royce as its customers.

"While commercial transactions remain primarily a matter for the parties involved, the government is closely monitoring the proposed acquisition of Meggitt by Parker Hannifin," a government spokesperson said.

"The Business Secretary has powers to intervene in mergers and takeovers which raise national security concerns."

Ohio-based Parker, which operates in industrial and aerospace markets with 55,000 employees in 50 countries, has made a series of commitments to the British government on jobs and security.

The U.S. company will keep a majority of UK nationals on Meggitt's board and maintain the company's UK headquarters.

It said it would maintain Meggitt's R&D, product engineering and direct manufacturing labour headcount in the UK at no less than current levels, while increasing by at least 10% the number of overall apprenticeship opportunities.

The deal follows months of media speculation about merger interest in Meggitt, which also operates in the energy sector. Shares in Meggitt had gained 86% since the rumours emerged in early May.

In a joint statement, Meggitt said while its board did not solicit an offer for the company, and several earlier, lower proposals from Parker were rejected, it intends to unanimously recommend the deal.

Parker, which has 2,100 employees in the UK, said the deal would add to earnings in the first full 12 months after closing, and that it expects $300 million of savings and $250 million in one-time costs.

Rothschild & Co and Morgan Stanley advised Meggitt on the financial terms of the deal, while Citigroup advised Parker.

($1 = 0.7182 pounds)

(Reporting by Muvija M in Bengaluru and Paul Sandle in London; Editing by Sriraj Kalluvila, Emelia Sithole-Matarise and Jane Merriman)

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