Parker-Hannifin buys Meggitt in £6.3b US-UK aerospace deal

London

PARKER-HANNIFIN Corp, the US maker of industrial motion-control systems, agreed to buy the UK's Meggitt Plc for £6.3 billion (S$11.9 billion) in cash to strengthen its hand in a rebounding aerospace industry.

The price of 800 pence a share is a 71 per cent premium to Meggitt's closing price on July 30, and the shares jumped towards that level in London. The premium will make it harder for a rival to jump in, after a string of buyouts of UK aerospace and defence firms by US suitors.

The deal would also be the biggest ever for Parker-Hannifin, which has accelerated its buyout activity under chairman and chief executive officer Tom Williams.

Adding Meggitt will nearly double the size of the company's aerospace systems unit, it said in a statement. That would position Cleveland-based Parker-Hannifin to better compete in an aviation sector that's just coming out of its biggest slump in history, as demand for aircraft returns following the coronavirus pandemic.

"We strongly believe Parker is the right home for Meggitt," Mr Williams said in a statement. "Together, we can better serve our customers through innovation, accelerated R&D and a complementary portfolio of aerospace and defence technologies."

Meggitt shares jumped 60 per cent to 749 pence at 8.27am in London. Parker-Hannifin closed last Friday at US$312.03 in the US. With a market value US$40 billion, it's about five times the size of its target.

The deal is the latest example of US buyers eyeing UK aerospace. Last month, Ultra Electronics Holding Plc received a £2.6 billion buyout approach from Cobham Ltd, the UK defence firm that has been owned by US private equity firm Advent International Corp since early last year. Senior Plc, the UK supplier of aerospace parts to Boeing Co and Airbus SE, rejected a buyout offer from Texas-based Lone Star Funds last month as too low.

The government scrutinised the first Cobham deal and said it would do the same for the Ultra proposal. Parker-Hannifin said it would offer commitments to the UK, including a pledge to continue supplying the government, and maintain existing technology and manufacturing in the country. A majority of Meggitt's board will continue to be British, it said.

Parker Hannifin, founded in 1917, has a significant UK presence, providing hydraulics, pneumatics to the aerospace, automotive and heavy industry sectors. It is already a defence supplier to the UK government.

The US company said one attraction was a business transformation of Meggitt over the past four years. The UK company reported £680 million in first-half revenue on Monday.

Meggitt's origins go back to 1850 under Negretti & Zambra, a scientific instrumentation business which invented the world's first altimeter for the hot air balloon.

Meggitt shares had been rising on takeover speculation, with a report in May 2021 saying Woodward Inc was looking at a potential deal. The Times reported this month that a mystery bidder had approached the company.

The UK company's directors intend to recommend unanimously that shareholders vote in favour of the deal at an investor meeting, the statement said. BLOOMBERG