U.K.’s Meggitt Soars on $8.8 Billion Buyout by Parker-Hannifin

(Bloomberg) -- Parker-Hannifin Corp., the U.S. maker of industrial motion-control systems, agreed to buy Meggitt Plc for 6.3 billion pounds ($8.8 billion) in cash to strengthen its hand in a rebounding aerospace industry.

Shares of Meggitt surged the most on record after the 170-year-old company said its board would recommend the 800 pence-per-share offer, 71% above Friday’s closing price. The massive premium will make it harder for a rival to jump in and snatch the Coventry, England-based target, after a string of buyouts of U.K. aerospace and defense firms by U.S. suitors.

The deal would be the biggest ever for Parker-Hannifin, which has accelerated its buyout activity under Chairman and Chief Executive Officer Tom Williams. The company, which supplies a variety of industries, was on a tear before the coronavirus pandemic, with the $4.3 billion purchase of filtration-products manufacturer Clarcor in 2017, and materials-science specialist Lord Corp. for $3.7 billion in 2019.

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

“We wanted a price that would be very compelling, that would gain shareholder support and would be very clear that we’re the best owner,” Williams said in an interview. “This is a company we’ve liked for a long time.”

The deal is so big it will rule out further M&A by Parker-Hannifin for the next three years, Williams said, as the company focuses on investment, dividends and paying down debt to get leverage ratios down.

Stock Jump

Monday’s share-price move vaults Meggitt above its pre-pandemic levels. Prior to the outbreak, the stock had been gaining steadily under a turnaround effort by CEO Tony Wood. Meggitt said as far back as 2016 that it would consider offers at the right price.

Meggitt shares jumped 57% to 734.6 pence at 11 a.m. in London, after rising as much as 62% earlier. Parker closed Friday at $312.03 in the U.S. With a market value of $40 billion, it’s about five times the size of its target.

U.K. Targets

The deal is the latest example of U.S. buyers eyeing U.K. aerospace. Cobham Ltd., the U.K. defense contractor that was acquired by U.S. private equity firm Advent International Corp. in early 2020, last month made a 2.6 billion-pound buyout approach for Ultra Electronics Holding Plc.

Senior Plc, a U.K. supplier of aerospace parts to Boeing Co. and Airbus SE, rejected a buyout offer from Texas-based Lone Star Funds last month. Speaking Monday, Senior CEO David Squires the bid “fundamentally undervalued” the U.K. company but that the board remained open to approaches.

The government scrutinized the first Cobham deal and said it would do the same for the Ultra proposal.

Read more: U.K. Government Monitors Cobham Buyout of Defense Firm Ultra

U.K. Commitments

Parker-Hannifin said it would offer commitments to the U.K., 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.

Williams said that he’d protect a significant proportion of Meggitt jobs and will seek to grow the business, not break it up.

“That’s not at all our strategy,” Williams said in an interview. “We like the entirety of this business and we intend to own it for a very long time.”

On a conference call, he said the pledge to increase U.K. research and development spending is valid for five years, while the other commitments last for 12 months.

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

The U.S. company said one attraction was a business transformation of Meggitt over the past four years. The U.K. company reported 680 million pounds in first-half revenue on Monday. Another benefit is Meggitt’s more advanced technology in areas including braking systems, advanced sensors and thermal management, Williams said.

Meggitt History

Meggitt’s origins go back to 1852, according to its website, 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 U.K. company’s directors intend to recommend unanimously that shareholders vote in favor of the deal at an investor meeting, the .

(Updates with CEO comments from fifth paragraph)

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