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Meggitt agrees to £6.3bn takeover by US rival

Parker-Hannifin’s offer represents a 71 per cent premium to Meggit’s last closing price
Meggitt agrees to £6.3bn takeover by US rival
  • Parker-Hannifin has agreed to acquire the company for £6.3bn in cash 
  • Interim results revealed that operating profit had dropped by two-fifths 

Meggitt (MGGT) has reached a takeover agreement with its US rival Parker-Hannifin, in a deal that values the engineering group at £6.3bn. The cash offer of 800p per share represents a 70.5 per cent premium to Meggitt’s closing price on Friday 30 July - the last trading day prior to the offer. 

News of the knockout bid came alongside the company’s interim results for 2021, which revealed that operating profit had dropped by two-fifths to £61.7m in the first half of the year. 

Revenues from its civil aerospace business dropped by a quarter on an organic basis to £172m, even as international travel began its tentative recovery. But management said it is still “cautiously optimistic”, as its aftermarket business, which provides ‘maintenance, repair and overhaul’ (MRO) services and spare parts, registered a 31 per cent increase in revenues in the second quarter compared with the first. 

Meggitt’s defence division proved more resilient, with revenues falling by 9 per cent on an organic basis to £302m, against a strong comparative period. Its potential new American parent Parker-Hannifin made much noise on results day about its commitment to the UK: including honouring its contracts with the government, ensuring that the majority of the board are British nationals and growing its research and development spend in the UK by 20 per cent over the next five years. 

Meggitt’s energy business was the only segment to post organic growth in the first half, with revenues up by 4 per cent to £60.1m. 

The group's net debt stood at 2.4 times cash profits. It has not sought covenant waivers, nor does it intend to pay an interim dividend given market conditions. Parker-Hannifin has swooped in before Meggitt is able to ride the potential recovery brewing in civil aerospace, but the premium is hard to resist, especially given the market backdrop. Await documents. 

Last IC view: Hold, 288p, 08 Sep 2020

MEGGITT (MGGT)   
ORD PRICE:742pMARKET VALUE:£5.87bn
TOUCH:741.6-742p12-MONTH HIGH:758pLOW: 245p
DIVIDEND YIELD:NILPE RATIO:NA
NET ASSET VALUE:261p*NET DEBT:37%
Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2020917-36844.3nil
202168033.63.60nil
% change-26--92-
Ex-div:na   
Payment:na   
*Includes £1.8bn in intangible assets or 233p a share