Jobs are under threat at the British engineering firm Meggitt after it agreed a £6.3bn takeover deal from US rival Parker Hannifin, in the latest approach for a UK-listed company from an overseas buyer.
The board of Meggitt, the FTSE 250 engineering company that operates in the aerospace, defence and energy markets, has unanimously recommended that shareholders accept the 800p-a-share deal, which the UK government says it is closely monitoring.
The offer is at a 71% premium on Meggitt’s closing share price on Friday. Meggitt’s share price had soared by more than 56% to 735p by mid-afternoon on Monday as investors reacted to the news, helping lift the FTSE 250 index of medium-sized firms to a record closing high.
As part of the deal, Parker, which employs more than 2,100 staff in 18 facilities across the UK, has made a number of legally binding contractual commitments to the government to protect Meggitt’s operations.
These include keeping Meggitt’s UK headquarters in Coventry; maintaining the headcount in its research and development, product engineering and manufacturing operations; ensuring most of the company’s board are UK nationals; and increasing research and development expenditure by a fifth during the next five years. However, Parker will look to cut jobs in areas not protected by the legal guarantees. Tom Williams, the Parker chairman and chief executive, said that a significant number of Meggitt’s approximately 2,000 UK staff would be protected from the cuts.
“Any transaction of this size, or any transaction period, typically has some overlap between the two businesses,” he said. “We are going to evaluate all the talent, all the people … and our intention is to put the best of both companies [together].”
The deal documents highlight areas of overlap between the two businesses “particularly in central corporate and support functions and a reduced need for roles currently supporting Meggitt’s status as a public listed company at Meggitt’s UK headquarters”. The operational review “may result in headcount reductions or relocation of Meggitt employees”, it added.
The acquisition of Meggitt, which is a defence supplier to the UK government and provides components for US F-35 Lightning II fighter jets, will almost double Parker’s aerospace operation.
“We are committed to being a responsible steward of Meggitt and are pleased our acquisition has the full support of Meggitt’s board,” Williams said. “We fully understand these responsibilities and are making a number of strong commitments that reflect them.”
However, all of Parker’s legal commitments are binding for only one year, Williams told reporters, except for the R&D investment pledge, which has a five-year guarantee. Williams said Parker did not intend to renege on guarantees after they expire.
“I see no reason why we would ever move the UK headquarters,” he said. “These are going to be commitments that will be there for a long time. We are a strategic buyer, we are builders. If you were to benchmark this total offer – our binding commitments in addition to our financial offer – I think you would find it stands in a place of its own compared to other transactions.”
He added that the deal was structured in anticipation of the upcoming National Security and Investment Act, which gives the UK government the power to protect important national assets from foreign takeovers.
“We are very conscious of it,” Williams said. “That is why we have framed the binding commitments as we did in such a way that they would be supported by all stakeholders.”
The UK government said it was closely monitoring the deal. “Under the Enterprise Act 2002, the business secretary has powers to intervene in mergers and takeovers which raise national security concerns,” a government spokesperson said, according to Reuters.
“While commercial transactions remain primarily a matter for the parties involved, the government is closely monitoring the proposed acquisition of Meggitt by Parker-Hannifin.”
Last month, the government announced a review of the proposed purchase of Newport Wafer Fab, the UK’s largest producer of semiconductors, by a Chinese-owned manufacturer.
The government is also scrutinising the takeover of the Cambridge-headquartered chip designer Arm by the US chip company Nvidia on national security grounds.
In July, the defence group Ultra Electronics signalled it was “minded to recommend” a provisional £2.6bn takeover offer from the US private equity-backed company Cobham.
“The UK takeover spree continues to move at pace,” said Russ Mould, the investment director at AJ Bell. “UK stocks have long been considered cheap, and this year’s merger and acquisition spree shows that overseas investors have finally got enough confidence to pounce on opportunities after years of showing little interest in the market.”
Sir Nigel Rudd, the Meggitt chairman, said that the takeover would “accelerate and de-risk” its growth plans.
“Meggitt is one of the world’s foremost aerospace, defence and energy businesses, leading the market with a strong portfolio of technology and manufacturing capabilities, and holding a significant amount of intellectual property,” Rudd said. “While Meggitt is currently pursuing a strong, standalone strategy which will deliver value to shareholders over the long term, Parker’s offer provides the opportunity to significantly accelerate and de-risk those plans while continuing to deliver for shareholders.”
