Phew! Kwarteng can breathe again as Meggitt race slims down to one
That’s a relief – especially for Kwasi Kwarteng, the business secretary. TransDigm, by a distance the more problematic of the two bidders for Meggitt, the Coventry-based maker of components for commercial and military aircraft, is out of the race. The Ohio-based firm yanked its £7bn proposal on Tuesday and grumbled about “the quite limited due diligence information” that Meggitt made available.
You got the same data as Parker-Hannifin, the other contender, Meggitt quickly replied, giving a hint of the tensions behind the scenes. One speculative reading of that sub-plot is that TransDigm, already borrowed up to the eyeballs by conventional yardsticks, required every last financial detail to make its lenders comfortable.
Sky-high leverage, though, was only one reason why Kwarteng’s current headaches on defence takeovers would have compounded if TransDigm had ended up in pole position. The US firm’s megabucks approach to boardroom pay and self-proclaimed “private equity-like culture” are a world away from UK industry norms. TransDigm’s run-ins in 2019 with the Pentagon over “gouging” on prices also suggested the Ministry of Defence would have a view.
So should everybody relax and look forward to Meggitt’s takeover by Parker-Hannifin, whose agreed offer at 800p-a-share, or £6.3bn, now has a clear run? After all, didn’t Sir Nigel Rudd, Meggitt’s chairman, describe Parker-Hannifin as “a responsible steward of Meggitt”? That contrasted with his remark, taken as a reference to TransDigm, about how “it’s the government’s job to look after national interests”.
Well, it’s true that the sole remaining bidder has made positive noises by hyping the “legally binding commitments to HM government” it will make on UK jobs and investment. One might also grant that the industrial case for a takeover of Meggitt, a maker of brakes, sensors, valves, fuel tanks and other kit, exists.
But the point about the pledges, in their current form, is that they’re too airy. Most last only for a year. The bidder concedes they are merely a basis for dialogue, in which case they’re more like an expression of good intentions. The hard, nailed-down details are what will count. Kwarteng has been spared a tricky TransDigm bid, but he must still get commitments from Parker-Hannifin that endure.
Playing hardball pays off for Cairns Energy
What a shame: it looks as if we will be denied more legal fun in the long-running saga of Cairn Energy’s tax dispute with the Indian government. In the last episode, the Scottish oil and gas explorer secured seizure orders on Indian state-owned properties in Paris. For the next, it was hinting at trying to grab Air India jets in New York.
Now a deal has been done. It’s not for the full $1.7bn sum that Cairn was awarded by a Dutch international arbitration tribunal last year. But you can understand why, viewed from an Edinburgh boardroom, a settlement at $1.06bn looks reasonable. Any attempt to hold out for every last rupee might take another half a decade and aggressive debt-collecting is not, in the end, Cairn’s specialism.
There was a slight air of disbelief in the City that this quarrel, relating to Cairn’s reorganisation of its former Rajasthan assets in 2014, is really close to a conclusion. But that’s the way it looks. Indian law has changed and Cairn is sufficiently confident to promise to return $700m), or about half its stock market value, to shareholders. The eye-catching tactics seem to have worked.
Time for some sport with BT?
Deutsche Telekom is in deal-making mode. It is betting bigger in the US via a swap deal with SoftBank and is selling its Dutch unit. So any plans for the 12% stake that the group owns in BT?
Surprisingly, the Deutsche chief executive, Tim Höttges chose to answer the question on Tuesday, or at least he set a few hares racing. He spoke about the “optionality” in the BT stake and volunteered: “I would say that in the next 12 months something is going to happen with the asset because the shareholder side is changing rapidly..
The change in question is the arrival of Patrick Drahi, the French-Moroccan telecoms billionaire who has also acquired an interest, also 12%, in BT via his Altice group. Was Höttges signalling to Drahi that he’s open to selling? Or reminding Altice that it’s not the only game in town? Or just having some sport?
Impossible to say, but the sense of plotting around BT is impossible to ignore. Let’s hope the government is alive to the risks. BT has been showered with incentives to roll out fibre broadband faster, and it’s not obvious why international deal-making would improve matters. Indeed, it might make progress slower.