Second US suitor bids for UK aerospace manufacturer Meggitt | Mergers and acquisitions

Defense and aerospace company Meggitt has received a second takeover bid from a competitor in the US that has sold the FTSE 250 maker for $ 7.1 billion.

Meggitt, manufacturer of wheels and brakes for military fighter jets, announced on Wednesday that US aviation company TransDigm has submitted a 900p stock takeover bid.

It trumped an 800p a share offer last week from a U.S. rival, Parker Hannifin, who valued Meggitt at £ 6.3 billion. The most recent offer was almost twice the Meggitt share price prior to Parker’s approach.

Meggitt’s board of directors has already recommended Parker’s offer to shareholders. TransDigm’s offer is only provisional and non-binding, but a firm offer could spark a bidding war.

Meggitt’s share price rose 16% to 830p on Wednesday after the TransDigm approach was announced. However, it remains below the 900p offer price, suggesting that investors believe the deal may fail.

It is the latest attempted takeover of a UK public company by potential overseas owners amid ongoing concerns about the apparent undervaluation of UK companies. Some analysts have cited Brexit concerns as one of the factors holding UK businesses back.

In addition to takeovers by competitors, the past year was mainly characterized by the number of deals supported by private equity investors. Asda and Morrisons supermarkets, St. Modwen Properties, private jet company Signature Aviation, fund managers Sanne and Equiniti, and infrastructure investor John Laing have all been targeted for acquisitions. Bargain hunters are also targeting the UK aerospace industry, including Senior and Ultra Electronics.

Wiltshire-based inhaler maker Vectura is in the middle of a takeover battle between US tobacco company Philip Morris and private equity firm Carlyle.

UK company acquisitions hit a 14-year high in the first seven months of 2021, driven by relatively cheap valuations, partly due to the pandemic and Brexit.

Meggitt, a member of the FTSE 250 index for medium-sized companies, employs 9,000 people worldwide, including 2,300 in the UK. It mainly produces parts such as wheels, brakes and fire extinguishing systems for military and civil aircraft, such as Lockheed Martin’s F-35 Lightning II aircraft.

Meggitt said she intends to release documents next week that will provide more details on Parker’s proposed deal. It has since granted TransDigm equal access to information for due diligence purposes.

The company said it would examine TransDigm’s “commitments of at least equivalent commitments to Parker” after the latter promised to keep Meggitt’s UK headquarters in Coventry, as well as maintaining headcount in research and development, product development and manufacturing operations. However, Parker is expected to cut an unknown number of jobs after the acquisition.

Meggitt’s two suitors are relatively close to each other. TransDigm, whose market value is $ 34 billion (£ 24.5 billion), had sales of $ 5.1 billion and profits of $ 653 million in 2020. That compares to Parker’s market value of $ 38.5 billion, with 2020 sales of $ 13.7 billion and profits of $ 1.2 billion.

The potential acquisition of Meggitt is likely to trigger an investigation by the UK government that already has the proposed acquisition of Ultra Electronics by Cobham, backed by US private equity investor Advent, and Newport Wafer Fab by Nexperia, a Chinese company , is considering computer chip maker. The Secretary of Commerce is said to have an “active interest” in Cobham’s approach to Ultra, while Prime Minister Boris Johnson personally ordered an inspection of the wafer maker.

Rory Smith, an analyst at investment bank Investec, described Meggitt’s likely acquisition as “Megxit” from the UK stock market. However, he warned of “increased risks for a happy union” and stated that “political intervention by Great Britain is not inconceivable”.

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A government spokesman said: “Under the Enterprise Act 2002, the business secretary has the power to intervene in mergers and acquisitions that 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.

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