US firm nears takeover of UK aerospace supplier Meggitt after rival pulls out
The British aerospace manufacturer Meggitt is a step closer to a takeover by US company Parker-Hannifin after rival suitor TransDigm said it would not make an offer.
Ohio-based TransDigm said on Tuesday it was pulling out of the race because it was unclear it would be able to secure a high enough return on its investment.
Meggitt’s board has already recommended that shareholders vote for a £6.3bn takeover offer made at the start of August by Parker.
Parker offered 800p a share, but TransDigm quickly signalled it was considering a 900p a share offer that would have valued Meggitt at £7.1bn.
Meggitt makes parts including wheels, brakes and engine sensors for civilian aeroplanes as well as parts for fighter jets such as the US F-35.
It is one of several British aerospace and defence companies subject to approaches in recent months, with some in the industry suggesting that UK-listed companies are undervalued compared with US rivals.
The UK government is monitoring a number of potential deals involving UK companies, including a bid for Ultra Electronics by Cobham, a manufacturer owned by US private equity firm Advent. The government is also carrying out national security reviews of the takeover of Newport Wafer Fab, a semiconductor manufacturer, and the potential takeover of Perpetuus Group, a small maker of graphene, the thinnest and lightest “supermaterial” known.
The TransDigm chairman, W Nicholas Howley, said the company had already arranged the financing to pull off a takeover of Meggitt, and that it had been in contact with the UK government offering assurances on jobs and investment equivalent to those given by Parker.
However, it was unable to guarantee the returns it tried to make on investments. Howley said: “Based on the quite limited due diligence information that was made available and the resulting uncertainties, TransDigm could not conclude that an offer of 900p a share would meet our longstanding goals for value creation and investor returns.”
On its website, TransDigm says it hopes to “provide private equity-like returns” from its investments – a comparison that raised concerns over its intentions for Meggitt.
TransDigm has previously faced criticism in the US for raising the prices of parts bought by the US defence industry. Howley faced questions in US Congress in 2019 from politicians including Alexandria Ocasio-Cortez, a prominent Democratic congresswoman who accused TransDigm of “price gouging”. The chairman said the company provided good value, but shortly after the hearing, it repaid $16m to the US government.
TransDigm’s retreat will prompt renewed focus on the strength of Parker’s promises on Meggitt’s jobs numbers. Meggitt employs about 2,300 workers in the UK and 9,000 globally.
Parker has said it would keep Meggitt’s UK headquarters in Coventry and maintain the number of employees in its research and development, product engineering and manufacturing operations the same.
It also said it would ensure most of the company’s board are UK nationals; and increase research and development expenditure by a fifth during the next five years. However, Parker’s boss, Tom Williams, has confirmed that the company would expect to cut jobs in areas not protected by the legal guarantees.
Meggitt on Tuesday said it had given TransDigm equal access to due diligence information. The company said in a statement that it continued to recommend the Parker offer, which will be put to a shareholder vote on 21 September.
A Parker spokesman said it was committed to continuing with its offer. In the meantime it is expected to continue conversations with the UK government over what assurances will be required.